Raleigh, N.C. – Successful tax reform helped North Carolina prepare far-better financially for the Covid-19 pandemic of 2020 than the financial crisis of 2010, despite billions of dollars in revenue collections being delayed as the filing deadline was extended from April 15 to July 15, 2020.
Compare tax policy in the prior decades of both crises: North Carolina’s sales tax rate was raised four times in 2003, 2005, 2007, and 2009, the state imposed a 6.9% corporate tax rate, and charged top personal income tax rate of 7.75% with a standard deduction of $6,600 for married families.
The state also raised taxes during the Great Recession by more than 5% of the prior year’s collections.
North Carolina was still ill-prepared for the 2010 financial crisis and accrued a $2.8 billion unemployment insurance debt to the federal government as a result. Pay cuts and furloughs followed for teachers and state employees.
In the next decade, the Republican-led General Assembly paid off the unemployment debt, imposed a lower sales tax rate, raised the standard deduction for married families to $21,500, lowered the income tax to a flat rate of 5.25% and reduced the corporate tax rate to 2.5%.
When the Covid-19 crisis began in March 2020, North Carolina had a $1.2 billion rainy day fund despite also spending over $1 billion on hurricane relief since 2017.
In the 2020 pandemic, North Carolina has not ordered state employee or teacher pay cuts and furloughs, and the General Assembly can continue funding pay raises for public employees provided each of the last five years.
State House Speaker Tim Moore (R-Cleveland) said North Carolinians were fortunate to continue paying lower tax rates and have confidence the General Assembly was well-prepared for another historic crisis despite the tax day delay.
“Smart tax reforms have secured our state’s finances through multiple hurricanes, through pandemics and tax day delays, while supporting pay raises for our public employees and historic investments in our economic infrastructure,” Speaker Moore said.
“Unlike 2010, North Carolina will not need to furlough workers or cut their pay in 2020, we can support an unprecedented surge in unemployment claims, and have confidence we remain prepared for unexpected emergencies in the future.”“I appreciate the commitment of my colleagues in the General Assembly to implementing successful tax relief that reduces the burden on families, grows our economy, and secures a strong budget outlook for the next generation of North Carolinians.”
North Carolina’s tax reform helped low-income earners save the highest percentage of their earnings by tripling the ‘zero-tax bracket’ for married families. Due to the higher standard deduction, 1.5 million North Carolinians are exempt from state income tax – 30 percent of all tax returns.
The lower sales tax rate and income tax rate in North Carolina, coupled with a higher zero-tax bracket, saved state taxpayers billions of dollars.
North Carolina was named the ‘Best State for Business’ by Forbes three years in a row thanks to a rapidly growing economy that benefited from tax relief for families and businesses.