RALEIGH — Building on a decade of reform, state Republicans once again are reducing taxes on North Carolinians with the 2023-25 spending plan.
“It’s been over a decade since voters entrusted Republicans to manage the state’s finances, and our formula of low taxes, responsible spending, and reasonable regulations works,” said Senate Leader Phil Berger (R-Eden) last week in a statement. “This two-year budget carefully considers our state’s past successes, our current needs, and the financial resources we have at our disposal,”
Rates for the state personal income tax, which make up the majority of revenue the state receives each year, will inch down again. Effective in 2024, the rate’s scheduled drop from 4.75% to 4.6% in 2024 will accelerate to 4.5% instead. Rates for the following years will come down quicker, going from 4.5% in 2024 to 4.25% in 2025, and down to 3.99% after 2025. The new rates amount to a $1.2 billion tax cut for families and businesses over the next two years, according to the conference report fund projections.
That, though, is only part of the tax cut package.
Language in the budget calls for the tax rates to automatically lower by one-half of a percentage point down to 2.49% if revenue targets are met. Those targets are due to be reported by the Office of the State Controller in August for the succeeding year.
“We continue the conservative governance that has made North Carolina a state we can all be proud to live in,” Senate Appropriations Chairman Sen. Brent Jackson (R-Sampson) said of the budget. “The sensible spending and healthy tax returns make for a strong, lean budget that doesn’t break the bank. As the national economy remains fraught with uncertainty, we took a cautious approach to make sure that North Carolina is prepared for whatever may come.”
In addition, changes to the state franchise tax will cap the tax rate on the first million of income of C corporation tax base at $500.
Sales tax exemptions will continue in several areas such as continuing care retirement communities and professional motorsports. Other items now exempt are breast pumps, breast pump collection, and storage supplies, repair and replacement parts.
“I can’t think of a state budget that does as much for infrastructure, education, and health care as this one — all while returning a significant sum of money to taxpayers to help ease inflationary pressure,” Senate Appropriations Chairman Sen. Ralph Hise (R-Mitchell), one of the other Senate Appropriations Chairs, said. “It’s easy to get carried away and spend more than you need, but we made sure that wasn’t the case with this budget. The numbers are large but manageable and will keep North Carolina’s finances strong for another two years.”
Strong revenues to state coffers have helped grow the state’s rainy day fund balance, and this year has been no different. The budget will add $125 million to the fund, taking it to just under a total of $5 billion.