Though It's Best Known For NASCAR, North Carolina Takes A Tax Reform Victory Lap

by Travis Brown, Forbes Magazine, July 26, 2013.

True reform requires true leadership. Over the past few weeks, North Carolina has provided a best-in-class example of what can happen when legislators keep their promises and governors follow through on their word. A few days ago, the North Carolina House and Senate gave final approval to major tax reform legislation. When that important bill hit Governor Pat McCrory’s desk, he signed it – ushering in a new era of growth and productivity for the Tar Heel State.

A promise means nothing if it isn’t kept. In my home state of Missouri, for example, our governor ran on a platform of job growth and fiscal conservatism, yet he’s currently kowtowing to far-left special-interest groups, rather than to the majority of Missourians who elected him. In North Carolina, however, Governor McCrory is proving good to his word – and then some. National tax experts say that the North Carolina reforms are the most significant in the nation. As other states idle their gears, North Carolina is moving full-speed ahead (perhaps not surprising from the state known for NASCAR!).

What, exactly, does tax reform look like in North Carolina? For starters, it’s a 25 percent reduction in the top income tax rate. The new legislation slashes the personal income tax from 7.75 percent to 5.75 percent by 2015. The corporate tax rate will plummet, too: from 6.9 percent to an even 5 percent. The state’s estate tax (or “death tax”) will be eliminated completely.

The numbers are impressive, but even more meaningful is the implication for North Carolina’s economic future. According to Elizabeth Malm of the nonpartisan Tax Foundation, the changes in North Carolina’s tax code will allow the state to jump from a dismal 44th to a an admirable 17th in the Tax Foundation State Business Tax Climate Index.

Governor McCrory sees the tax cuts as an economic boost for his state, which sorely needs this type of job-creating reform. According to North Carolina Senate President Phil Berger, the legislature may take steps toward an even lower tax rate in the coming years. For now, though, both the governor and the legislature are happy to see the Tar Heel State on a path toward economic growth and government accountability (the reform package limits future state spending by more than $2 billion over the next five years).

There can be no doubt about it: Over the past year, tax reform has become an integral part of the national debate. What was once an academic discussion is now part of everyday conversations, both around the dinner table and within the halls of power. Tax reformers owe a debt of gratitude to governors like Pat McCrory, who are willing to take concrete steps toward real change. Just a few months ago, who would have imagined that Forbes would call North Carolina an ideal place for retirees, thanks to its tax code? We can expect to see much more praise for North Carolina – from businesses, employees, and families – in the weeks and months to come. The governor’s bold steps will have positive repercussions for all who live and work in the Tar Heel State.