Local News

Legislators Examine Local, State Tax Burden

Posted February 25, 2003 3:55 a.m. EST

— A relatively low state and local tax burden in North Carolina will not prevent industries from moving to other states if corporate tax rates remain high, state legislators said Tuesday.

A legislative briefing on shifts in taxes over the last decade spilled over into a debate about whether they are spread equitably and their effects on the business climate within the state.

The issues will be important factors as legislators begin drawing up a state budget facing a third consecutive year of stagnant tax collections and a soft economy.

In 2002, North Carolina ranked 29th in the country in state and local tax burden as a percentage of personal income, according to U.S. Census Bureau data.

Republican lawmakers, though, say the ranking doesn't change the fact that high corporate income and personal income tax rates hurt the state when it comes to job recruitment.

"If a company is going to consider coming to North Carolina, why would they consider coming here when they learn the corporate income tax rate is the highest in the Southeast?" said Sen. Robert Pittenger, R-Mecklenburg. "So we really are creating an impediment to job creation and economic development."

North Carolina's corporate income tax rate is 6.9 percent. Neighboring states Tennessee, Virginia and Georgia have a 6 percent corporate rate, while South Carolina taxes corporations at 5 percent.

The marginal income tax rate North Carolina places on wealthy earners requires that they pay 8.5 percent on a portion of their earnings. That rate is also higher than any other southeastern state.

But North Carolina also picks up the cost of services that many states leave to local governments. That translates into relatively low property tax rates and an absence of many of the local option taxes effective in states such as Virginia.

North Carolina also is one a handful of states that does not tax government pensions and one of 35 that doesn't tax Social Security benefits.

"The important question for the General Assembly is whether taxes are fairly distributed among the population," said Rep. Paul Luebke, D-Durham. "Corporations and the wealthy shouldn't be excluded from taxes just because they make more noise about paying taxes."

But Sen. Bob Rucho, R-Mecklenburg, said the state won't be able to increase average personal income if its tax policies drive business away.

"The last thing we need to do is to put more of a burden on businesses," Rucho said.

Legislators were also provided with information showing that, as a percentage of revenues collect, county governments are relying on property taxes for a smaller percentage of their budgets than they were a decade ago.

Those numbers may be skewed, local government officials said, because of a rise in the federal pass-through dollars to pay for programs like Medicaid.