Cut To State Income Tax Costing Far More Than Expected

Jul 25, 2014

Chart showing the updated cost to North Carolina due to last year's income tax rate change.
Credit Fiscal Research Division

Last year’s cut of the personal income tax rate is costing North Carolina far more than originally projected.  This according to new figures released by the General Assembly’s Fiscal Research Division.

Last year the state changed the personal income tax rate from a three-tiered system ranging from 6 percent to 7.75 percent to a flat tax rate of 5.8 percent.

At the time the Fiscal Research Division estimated the move would decrease income tax revenue by $475 million.

Now, armed with information gleaned from actual tax returns filed, they estimate the tax cut will cost North Carolina $680 million in revenue for this tax  alone. That's a jump of more than 40 percent.

Additional tax cuts are set to take place on the first of the year.

The new estimates were run at the request of Democratic Senator Josh Stein of Wake County. In the memo he received in response the lead economists in the study said their projections do not include cuts in the corporate tax rate.

Those cuts could lead to an even larger budget hole.

They study authors also point out, however, their projections do not include potential added revenue generated by a broadening of the sales tax which was also passed last year.