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From Site Selection magazine, September 2015

Fourth and Climbing

The Tar Heel State’s economic outlook keeps improving, and its corporate tax rate keeps falling.

Asheville, North Carolina
Photo by Bob Schatz


North Carolina has the fourth-best economic outlook in the US, according to the 2015 Edition of Rich States, Poor States: ALEC-Laffer State Economic Competitiveness Index, released in April. The annual study is authored by economist Dr. Arthur Laffer; Stephen Moore, chief economist at the Heritage Foundation; and Jonathon Williams, director of the Tax and Fiscal Policy Task Force at the American Legislative Exchange Council. Utah ranks first, followed by North Dakota and Indiana.

Fourth place is an improvement on its sixth-place finish in last year’s ranking. And that was a big jump over its performance in the several previous years, when it languished in the low- to mid-20s range. The ranking is a composite of states’ overall performance in a set of 15 individual measures. North Carolina ranked first in three of those — whether estate/inheritance tax is levied (it’s not), state minimum wage (it’s at the federal floor of $7.25) and right-to-work status (yes).

Criteria that were a drag on North Carolina’s performance in the ranking include public employees per 10,000 population (37th place), top marginal personal income tax rate and average workers’ compensation costs (24th place each) and personal income tax progressivity and state liability system survey (20th place each).

The study also includes an economic performance ranking, in which North Carolina places 10th. Whereas the economic outlook rank looks forward, the economic performance rank looks backward. This ranking factors in three criteria highly influenced by state policy — absolute domestic migration 2004 to 2013 (3rd place), non-farm payroll employment 2003 to 2013 (14th) and state gross domestic product 2003 to 2013 (19th).

“The big story this year is the bipartisan embrace of state tax cuts,” said report co-author Jonathon Williams when the rankings were released. “States are increasingly realizing the need to become more competitive through fiscal responsibility and free market economic reforms. We anticipate 2015 will be a record year for pro-growth tax reform.”

Tax Reform Yields Results

It already is in the Tar Heel State. Final revenue figures for the fiscal year ending on June 30 revealed a $445 million revenue surplus, setting the stage for a 1-percent reduction in the corporate tax rate effective January 1, 2016. The figures indicate that revenues have met the trigger required for further corporate tax relief under the 2013 tax reform plan. Corporate income tax was lowered from 6.9 percent to 6 percent in 2014 and to 5 percent for 2015. A reduction to 4 percent will make North Carolina’s corporate income tax rate the lowest top rate in the country other than the handful of states with no corporate income tax.

“The surplus is evidence that reforming the tax code and increasing competitiveness are strengthening North Carolina’s economy and putting more money into the budget of working families,” Governor McCrory said on July 28th. “We must continue to be wise stewards of the taxpayers’ resources as well as maintain our efforts to make state government more efficient and responsive to the people.”

The surplus this fiscal year is predominantly the product of strong growth in business income, which resulted in a surge of final payments this April. Tax payments in April were up 15 to 20 percent from last year, which was largely driven by increased business income and capital gains.

Mark Arend
Editor in Chief of Site Selection magazine

Mark Arend

Mark Arend has been editor in chief of Site Selection magazine since 2001. Prior to joining the editorial staff in 1997, he worked for 10 years in New York City at Wall Street Computer Review, ABA Banking Journal and Global Investment Technology. Mark graduated from the University of Hartford (Conn.) in 1985 and lives near Atlanta, Georgia.


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