State Implications of the One, Big, Beautiful Bill
As the US House hashes out its “One, Big, Beautiful Bill,” statehouse lawmakers are watching closely, given the impact of both its tax and spending provisions on state budgets.
12 min readNorth Carolina‘s tax system ranks 12th overall on the 2025 State Tax Competitiveness Index. Of the states that levy all the major taxes, North Carolina is among the highest performers on the Index, with its flat 4.5 percent individual income tax rate, low 2.5 percent corporate income tax rate (slated for eventual repeal), and relatively competitive property and sales tax systems. These low rates are made possible in part by North Carolina’s decision to forgo many nonneutral and distortive business tax credits, such as jobs, R&D, and investment tax credits, and for its commitment—secured through a series of reforms in the past decade—to broad bases and low rates.
North Carolina does, however, have room for improvement in its treatment of business net operating losses, as the state allows only 15 years of net operating loss (NOL) carryforwards, whereby past losses can be deducted from current or future profits to ensure the tax falls on average long-run profitability and to avoid subjecting cyclical businesses to a penalty. Additionally, North Carolina’s bonus depreciation allowance is only 15 percent, substantially lower than the federal allowance. Moving forward, the state could rectify this adverse treatment of investment by adopting permanent full expensing separate from the federal Section 168(k) provision. Furthermore, North Carolina’s Section 179 expensing limit is only $25,000, significantly lower than the $1 million federal allowance. Finally, the largest barrier to the state’s tax competitiveness remains its capital stock tax, called the franchise tax, which is unusually aggressive and taxes businesses on their worth rather than their profits, harming investment and yielding a tax levied without regard to ability to pay.
Category | Rank | Rank Change | Score |
---|---|---|---|
Overall | 12 | 1 | 5.57 |
Corporate Taxes | 3 | 0 | 6.31 |
Individual Income Taxes | 21 | 2 | 5.57 |
Sales Taxes | 16 | 0 | 5.07 |
Property Taxes | 20 | 4 | 5.23 |
Unemployment Insurance Taxes | 7 | -1 | 5.69 |
As the US House hashes out its “One, Big, Beautiful Bill,” statehouse lawmakers are watching closely, given the impact of both its tax and spending provisions on state budgets.
12 min readAccording to the latest economic data from the US Census Bureau, the average per capita state and local tax burden is $7,109. However, collections vary widely by state, reflecting differences in tax rates and bases, natural resource endowments, the scale and scope of taxable economic activity in each state, and residents’ political preferences.
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