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Pro-Growth Tax Reform Ideas for North Carolina


Lee Schalk
January 28, 2013

With the 2013 legislative session beginning this week in Raleigh, the Tax Foundation’s timing couldn’t have been better. Today marks the release of their new book, North Carolina Tax Reform Options: A Guide to Fair, Simple, Pro-Growth Reform, which carefully examines the Tar Heel State’s current tax structure and presents four revenue-neutral tax reform options that could significantly improve the State’s overall economy and business tax climate. In a News and Observer op-ed, authors Scott Drenkard and Joe Henchman summarize the four plans:

  • “Option A” makes North Carolina the most pro-growth tax system in the country, simplifying the personal income tax at 6 percent, lowering the statewide sales tax to 3.5 percent while expanding its base to services, and repealing the corporate income and franchise taxes.
  • “Option B” keeps all the major taxes, but simplified and at low rates: a 5 percent income tax, 5 percent sales tax and 5 percent corporate tax. A similar positive reform was adopted in Utah, contributing to its economic success.
  • “Option C” would eliminate taxes on individual and corporate income and broaden the sales tax base to services to make up the revenue. The total state sales tax rate would have to be raised to 8.75 percent to fully fund current levels of state spending, but the benefit of this option is that North Carolina would be one of the few states with no taxes on investment or job creation.
  • “Option D” eliminates taxes on retail sales and corporate income, paying for these reductions with a single, simple tax on individual income at a flat 10 percent rate.

Each of these plans is discussed in further detail in the book, along with an in-depth study of North Carolina’s evolving economy. Also included are additional tax reform suggestions such as repealing taxes on intangibles and inheritance.

Moving forward, this will be an excellent resource for North Carolina lawmakers looking to implement a more neutral and fair tax system. With pressure mounting from overburdened taxpayers (who gave the GOP total control of the State Capitol for the first time in more than a century), there is a strong chance we’ll see positive tax reforms coming out of Raleigh in the near future.  


 

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