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  North Carolina's Republican tax experiment
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Last EditedImperator  Aug 10, 2013 08:59am
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AuthorJeanne Sahadi
News DateSaturday, August 10, 2013 02:00:00 PM UTC0:0
DescriptionTax reform is still all talk, talk, talk in Washington. And many expect real action could take years.

But not in North Carolina. The state has taken a very big first step in overhauling its tax code -- enacting its first major reform in 80 years.

The change, signed into law last month, creates a modified flat tax system, with a single income tax rate, an increased standard deduction and fewer tax breaks, as well as the elimination of the personal exemption and a $50,000 deduction for small business owners. It also repeals the state's estate tax.

"It's fairly radical in relation to other states," said Kathleen Thies, senior state tax analyst for the tax publisher CCH.

The overhaul has been lauded by Republicans, who dominate the state's legislature. They see the changes as a way to attract more business to North Carolina and create jobs.

The big hope: The new economic activity will compensate for the estimated $2.4 billion revenue loss over the next five years as a result of the reforms.

But the overhaul -- which represents a scaled back version of earlier proposals -- has been heavily criticized by many, mostly liberals. They contend its tax cuts will disproportionately benefit the rich and the revenue loss will cut into government services.

Starting in 2014, the individual income tax rate will be 5.8%, and then it will fall to 5.75% in 2015. Those rates are down from the 6%, 7% and 7.75% rates currently in effect.

The standard deduction, meanwhile, will more than double -- to $7,500 for singles, from $3,000; and to $15,000 for married couples filing jointly, from $6,000.
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