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In 2013, North Carolina policymakers accomplished fundamental tax reform,
implementing overhauls in multiple areas of the tax code. The multi-bracket
individual income tax that topped out at 7.75 percent was replaced with a flat 5.75
percent tax with a generous standard deduction. The corporate tax rate was cut
from 6.9 percent to 6 percent in year one, with trigger reductions scheduled to bring
the rate to 3 percent by 2017. The sales tax base was broadened to offset some of
the revenue reductions.
Initial indicators on the effect of the tax changes are positive. The state improved
its ranking in the State Business Tax Climate Index from 44th to 16th,1 tax revenue
exceeded projections by $400 million this year.2 Additionally, the tax reform was
paired with unemployment reform, and unemployment rates dropped from 8.3
percent to 6.9 percent in the second half of 2013.3
In recent months, the North Carolina House has responded to calls from Governor
Pat McCrory to renew tax incentive programs with a bill that allocates $45 million to
Job Development Investment Grants (JDIG).4 On June 10th, the Senate responded
with a bill that makes changes to the existing tax incentive scheme, but also includes
numerous broad-based reforms as well.
1 Scott Drenkard & Joseph Henchman, Tax Foundation, 2015 State Business Tax Climate Index, Oct. 28, 2014, http://
2 Colin Campbell, Projections show $400 million NC surplus