NC Legislators to possibly consider proposal in 2013 eliminating state income tax
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RALEIGH—North Carolina legislators could consider a proposal next year to eliminate the state's income tax.
It is a popular measure with some Republicans. However, there are political and economic impacts. The idea came up on the campaign trail this fall and it is popular with conservatives across North Carolina; scrapping the state income tax altogether.
"I think there are some folks that are asking the question; are North Carolina's tax rates too high," said UNC Charlotte economist John Connaughton.
Critics say the tax rates discourage companies from relocating to North Carolina. Eliminating the income tax, they say, would be huge economic development tool.
"Certainly one of the advantages of going out and recruiting a business could be no income tax," said Catawba College professor Michael Bitzer.
However, in order to make up the lost revenue, legislators would almost certainly have to expand the sales tax. Currently, North Carolinians pay sales tax on most goods. Yet residents do not pay tax on services.
"All of the services that you purchase, so you go to a doctor, you don't pay sales tax on that service, you go to a lawyer, you don't pay sales tax,” said Connaughton.
Seven states currently do not have income tax:
• South Dakota
Political scientists say scrapping the income tax could be attractive to new, conservative members of the general assembly.
"This may be a proposal that may gain some potential legs coming into the new General Assembly," said Bitzer.
However economists say major reform is not necessarily the magic solution to the state's struggling economy.
Economists point out that Virginia which charges income and sales taxes, still has an unemployment rate more than three percentage points lower than north carolina's.
Political scientists still expect tax reform to be a major focus for the General Assembly in next year's session, even if lawmakers decide against repealing the income tax.