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

 
 
January 23, 2013

Table 1: Key Elements of North Carolina Tax Reform Options


Table 2: Combined State Income & Sales Tax Liability under Reform Options

Source: Tax Foundation calculations; Internal Revenue Service; U.S. Census Bureau; North Carolina Department of Revenue.
*Negative liability depending on EITC eligibility.
Includes average local sales tax of 2.1 percent; excludes federal tax liability and other state and local taxes. Calculations do not include EITC or grocery tax credit. Estimates are static analysis that assumes no immediate dynamic income growth from tax changes. Calculation assumptions: Using averages from IRS SOI data from 2009, calculations assume that income levels up to $60,000 take the standard deduction, that the $100,000 income level takes 15 percent of income in itemized deductions, that the $250,000 income level takes 11 percent of income in itemized deductions, and that the $500,000 level takes 8 percent of income in itemized deductions. Sales tax calculation assumptions used average estimates from national Consumer Expenditure Survey data from 2011: Households at $10,000 level spend 70 percent of income on taxable purchases at the current sales tax base and 135 percent on taxable purchases after base broadening; for households at the $25,000 level, 44 percent and 82 percent, respectively; for the $40,000 level, 33 percent and 60 percent, respectively; for the $60,000 level, 32 percent and 57 percent, respectively; for the $100,000 level, 26 percent and 44 percent, respectively; for the $250,000 level, 24 percent and 36 percent, respectively. See Appendix for detailed tables.

Table 3: Effective Tax Rates Combined State Income & Sales Tax Liability under Reform Options

Source: Tax Foundation calculations; Internal Revenue Service; U.S. Census Bureau; North Carolina Department of Revenue.
*Negative liability depending on EITC eligibility.
Includes average local sales tax of 2.1 percent; excludes federal tax liability and other state and local taxes. Calculations do not include EITC or grocery tax credit. Estimates are static analysis that assumes no immediate dynamic income growth from tax changes. Calculation assumptions: Using averages from IRS SOI data from 2009, calculations assume that income levels up to $60,000 take the standard deduction, that the $100,000 income level takes 15 percent of income in itemized deductions, that the $250,000 income level takes 11 percent of income in itemized deductions, and that the $500,000 level takes 8 percent of income in itemized deductions. Sales tax calculation assumptions used average estimates from national Consumer Expenditure Survey data from 2011: Households at $10,000 level spend 70 percent of income on taxable purchases at the current sales tax base and 135 percent on taxable purchases after base broadening; for households at the $25,000 level, 44 percent and 82 percent, respectively; for the $40,000 level, 33 percent and 60 percent, respectively; for the $60,000 level, 32 percent and 57 percent, respectively; for the $100,000 level, 26 percent and 44 percent, respectively; for the $250,000 level, 24 percent and 36 percent, respectively.

 

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