Gov. Roy Cooper’s shutdown orders have produced difficult economic times for North Carolina families and businesses. Still, thanks to a decade of Republican tax reforms, many have a little more breathing room and are better prepared to weather the current pandemic.
Tax reform began in 2011, when the newly elected Republican legislative majority reduced the state sales tax rate from 5.75% to 4.75%, a reduction of 17 percent. Tax reform continued in 2013, when the Republican legislature simplified the personal income tax from rates ranging from 6.0% to 7.75%, to a single flat rate of 5.8%, with a higher standard deduction, starting in 2014. Subsequent reductions dropped the rate to 5.25% today, the lowest in the southeast, and have exempted still more income from taxation.
That means more money in the pockets of working families, with a particular benefit to low-income households who no longer have a state tax bill, courtesy of the larger standard deduction.
“More than 1.5 million working families in North Carolina owe no income tax on their earnings now that the state’s standard deduction has tripled,” reported House Speaker Tim Moore’s office in April 2019.
To make North Carolina more competitive and provide more money for all employers to invest, tax reform also reduced the corporate tax rate from 6.9% to 6.0% in 2014, and to 5.0% in 2015. Additional changes have dropped the rate to 2%, the lowest of any state with a corporate tax.
The reforms made North Carolina far more competitive for jobs and investment. According to the Tax Foundation, North Carolina’s state business climate leaped from a dismal seventh worst in the nation in 2012 to 17th best the following year.
Moreover, most readers would likely be surprised to learn that it was the Democratic Party that raised the regressive sales tax, and the Republicans who cut it. When the legislature was controlled by the Democratic Party, it enacted six permanent or temporary increases of the “regressive” state sales tax — in 1991, 2001, 2003, 2006, 2008 and 2009. The increases almost doubled the state sales tax from 3.0% in 1991 to the peak of 5.75% in 2009.
When the legislature was controlled by the Democratic Party, it enacted six permanent or temporary increases of the “regressive” state sales tax — in 1991, 2001, 2003, 2006, 2008 and 2009.
When the Republican legislature won their budget battle against then-governor Bev Perdue in 2011 and successfully rebuffed her desire to extend ¾ of a previously imposed “temporary” penny sales tax increase, state consumers were granted a tax cut estimated at the time at $826 million annually.
Also important to note is that the majority Democrat legislature also repeatedly raised North Carolina’s personal income tax, on a permanent or temporary basis, in 1991, 2001, 2003, and 2005, when at one point the maximum rate was 8.25%, one of the highest state income tax rates in the nation.
The progressive propaganda claiming that Republicans have only cut taxes “for the rich and big corporations” is blatantly false.
At the time, some progressive groups were making the claim that the 2013 reforms would result in 80% of North Carolinians paying higher taxes.
The “80% will pay higher taxes” assertion, however, was soundly debunked by multiple sources. Washington Post fact-checkers called the claim “absurd,” factcheck.org bluntly said the claim “is wrong,” while WRAL-TV in Raleigh declared the statement was “unsupported by facts,” and “is simply not right.” Indeed, even the head of the organization that produced the report used as the basis for the 80% claim publicly acknowledged, “It’s just a very inaccurate use of the 80% number.”
It is the Republicans who have cut taxes for all North Carolinians after decades of Democrats raising taxes on everybody.
The bottom line is that today North Carolina’s tax burden is vastly different than it was in 2010. A decade of conservative reforms has transitioned the Tar Heel state from having the highest personal and corporate income tax rates in the southeast to the lowest, while saving consumers approximately $1 billion a year thanks to the sales tax cut.
The contrast is clear. Over the past few decades, Republican majorities lowered taxes on everyone, including lowering the sales tax; and Democrat majorities increased taxes on everyone.
Now it’s up to voters to decide if they want to go back to an era of higher taxes or not.
Brian Balfour is executive vice president of NC Civitas.
