PROTECTING SMALL BUSINESS, PROMOTING ENTREPRENEURSHIP

STATE OF THE WEEK: North Carolina…Tax Reforms and the Race for Governor

By at 15 September, 2016, 5:15 pm

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by Raymond J. Keating-

Small Business Policy Index 2016: North Carolina ranked 19th among the 50 states.

SBE Council’s “Small Business Policy Index 2016” ranks the 50 states according to 50 different policy measures, including a wide array of tax, regulatory and government spending and performance measurements.

Small Business Tax Index 2016: North Carolina ranked 11th among the 50 states.

SBE Council’s “Small Business Tax Index 2016” ranks the states according to 25 different tax measures. Among the taxes included are income, capital gains, property, death, unemployment, and various consumption-based taxes, including state gas and diesel levies.

Reforms and North Carolina’s Competitiveness

Small businesses, along with all other taxpayers in North Carolina, have experienced a dramatic improvement in their state’s tax climate in recent years.

Consider that North Carolina’s corporate income tax rate declined from 6.9 percent to 6 percent in 2014, 5 percent in 2015, and 4 percent in 2016.

The personal income tax was reformed effective for 2014, with three tax rates of 6 percent, 7 percent and 7.75 percent being replaced with a 5.8 percent flat tax. That rate then declined to 5.75 percent in 2015.

And for good measure, the state’s death tax was killed off in 2013.

That’s a comprehensive plan of tax reform and relief that should be applauded by all, and serve as a model for other states with burdensome income tax systems, along with the federal government.

In this year’s hotly contested governor’s race in North Carolina between Republican Gov. Pat McCrory and Democratic Attorney General Roy Cooper, the issue of taxes certainly has come into play. Consider the following from a Charlotte Observer report on a June gubernatorial debate:

“McCrory touted the $4.4 billion in tax cuts enacted by the Republican-controlled General Assembly.

“The governor signed bills that cut the personal and corporate income tax rates, raised standard deductions and got rid of the inheritance tax.

“He said Cooper supported tax hikes as a legislator in the 1980s and ’90s.

“But Cooper accused McCrory of ‘tax giveaways to the large corporations at the expense of public education and the middle class.’

“Alluding to changes that expanded services subject to the sales tax, he said McCrory has raised more than 60 taxes ‘from birth to death.’”

And in an August candidate forum, a difference on taxes and how they impact the economy was heard, as noted in a WRAL report:

“McCrory boasted about the numbers his administration achieved: He said North Carolina’s unemployment rate is down, corporate and income tax rates are down and teacher pay is up – and rising – since he took office. The drop in income and corporate taxes, he said, make the state competitive for jobs not just in the Southeast, but around the world.

“Cooper said he wouldn’t call for raising taxes, but he doesn’t think corporate taxes should be cut further. Businesses would benefit more, he said, by the state investing more in education to deliver a trained workforce.”

Other Key Points on North Carolina…

• Other than the six states without a state corporate income tax, North Carolina has the next lowest corporate tax rate.

• North Carolina has a relatively low property tax burden.

• North Carolina has no state death tax.

• North Carolina has a fairly low level of state and local government debt.

• North Carolina is a right-to-work state.

• North Carolina imposes no additional state minimum wage mandate.

• North Carolina imposes high gas and diesel taxes at the pump.

• North Carolina imposes a heavy energy regulatory burden.

• North Carolina imposes a heavy insurance regulatory burden.

• North Carolina ranked 26th among the states in terms of electricity costs, according to an SBE Council analysis.

North Carolina elected officials have made dramatic strides forward in making the state a far more hospitable place to start up, build and invest in a business. There’s still work to be done on both regulatory and tax relief. Let’s hope North Carolina continues to be a constructive, positive example for other states and the federal government. If they continue down that road, entrepreneurship, investment, income growth and quality job creation will flourish.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.

 

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