North Carolina Tax Reform Options: A Guide to Fair, Simple, Pro-Growth Reform

January 23, 2013


Option A

Option A would make North Carolina among the most pro-growth tax systems in the country:

  • 6% simplified income tax (competitive with North Carolina’s neighbors), based on adjusted gross income and a $5,000 personal exemption
  • 3.5% state sales tax (reduced from 4.75%), expanding the base to services but excluding business-to-business transactions
  • Repeals the corporate income and franchise taxes, eliminating taxes that impose enormous compliance costs on in-state job creation and capital investment
  • Clears aside tax barriers to investment and job creation while establishing a more transparent tax system linked to reliable revenue sources
  • Retains the low-income Earned Income Tax Credit (EITC) and can include low-income tax credit to offset grocery purchases
  • Raises the same amount of revenue as the existing tax system
  • Distributionally similar to the existing tax system
  • State tax system would rank 5th on the State Business Tax Climate Index, up from 44th


Table 37: Select State Top Income Tax Rates under Option A

Source: Tax Foundation

Table 38: Select State Sales Tax Rates under Option A

Source: Tax Foundation

Table 39: Key Elements of Option A




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