Tax cut nirvana.

• Author: Hood, John
• Position: Free & Clear

Reducing corporate levies has made the state a magnet for business. Next on the agenda: Taking a scalpel to franchise and capital-gains taxation.

Here's a near-universal experience for parents. Your family is visiting an out-of-town relative or friend, someone you haven't seen in a long time. When your son or daughter walks in, you are greeted by a hearty, "Who is that gigantic person?" When seeing children every day, their growth is perceived as gradual. To someone who compares present reality to a mental picture from months or years ago, the change can be startling.

There's a similar dynamic underway in North Carolina government. Ever since Republicans took control of the General Assembly in 2010, and particularly since Pat McCrory was elected governor in 2012, public policy has experienced repeated, sweeping waves of change. State agencies have come and gone. Our systems for funding transportation and delivering education have been revolutionized. A series of regulatory reforms have transformed the way rules are developed, justified, enforced and reviewed.

Those directly involved in politics or public policy are certainly familiar with these changes--whether welcomed or disdained. But I wonder if, like the parent of the growing child, many are incapable of appreciating just how dramatic these changes have been. Perhaps a "before-and-after" exercise can help.

I'll focus on one of the most consequential areas of policy innovation: taxes. In 2010, North Carolina had the second-highest tax burden as a share of income in the Southeast. Our state income tax levied three marginal rates. The top rate of 7.75% was the highest in our region and among the highest in the country. Moreover, it kicked in at $60,000 in taxable income for singles. Even some states with higher top rates, such as Minnesota and New Jersey, applied those rates at higher thresholds, and thus were friendlier to taxpayers who earned, say, $60,000 to $70,000 a year.

North Carolina's corporate tax rate of 6.9% also stuck out like a sore thumb in our region, with only Louisiana and West Virginia levying higher ones. Unlike most states, North Carolina then applied a separate tax on the capital stock of firms doing business in the state, (called the franchise tax). And unlike South Carolina and several other competitors, North Carolina made no effort to reduce the double taxation of corporate income by excluding all or part of capital gains from the base of the personal income tax.

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