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A New Year, Old Challenges

A New Year, Old Challenges. 2011 includes several old challenges. It is time to take bold action to address these outstanding challenges. Tax Reform For the State of North Carolina, tax reform is key. Current General Fund Revenue. Baseline Revenue Growth, FY 1996-1997 to FY 2010-2011.

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A New Year, Old Challenges

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  1. A New Year, Old Challenges • 2011 includes several old challenges. • It is time to take bold action to address these outstanding challenges. Tax Reform For the State of North Carolina, tax reform is key.

  2. Current General Fund Revenue Baseline Revenue Growth, FY 1996-1997 to FY 2010-2011 NOTE: The last column represents the current forecast baseline estimate. Source: Fiscal Research Division, A Staff Agency of the North Carolina General Assembly.

  3. Increasing Rates Source: Fiscal Research Division, A Staff Agency of the North Carolina General Assembly.

  4. Moving Forward to a More Reliable System Average State General Fund, FY 2000-2001 to FY 2009-2010

  5. Moving Forward to a More Reliable System • Federal and State deductions and credits reduce State revenue by $2.5 billion. • Federal itemized deductions reduce revenue by $1.3 billion. • 38 state credits and deductions reduce revenue by $1.2 billion. • Suggestion • Allow certain itemized deductions (mortgage and charitable donations), but cap the amount deducted. Eliminate Complexity in the System Remove exemptions and credits that only individuals with tax accountants can take advantage of and understand.

  6. Moving Forward to a More Reliable System Income Tax Rates Current and Proposed Sales Tax Rates • Cowell Proposal to Lower the Tax Rates • The rate for each income tax bracket would shift one percentage point, creating new brackets of 5%, 6%, 6.75%. • The state sales tax rate would shift to 3.75%.

  7. Moving Forward to a More Reliable System • The proposal is to include: • Entertainment • Repairs and Storage • Property Services • Support • Personal Care Services Keeping North Carolina Competitive as a State These services are typically taxed in other states and would not lead to a competitive disadvantage.

  8. Corporate Income Tax • Corporate tax rate = 6.9% • 65% of corporate tax returns had no net taxable income. • Business tax credits and incentives cost $277 million in 2009-2010. • Cowell Proposal to Lower the Tax Rate • Shift to a combined reporting standard for determining corporate income. • Eliminate credits and incentives that have not been proven to work. • Lower the tax rate to 5.9%.

  9. Role of Leadership in Solving the Big Problems • “Leadership is about disappointing your (constituents) at a rate they can absorb.” • - Marty Linsky Source: “Disappoint Your Own People at a Rate They Can Absorb,” The Washington Post, 10/26/2010

  10. Next Steps • As State Treasurer, I will: • Be a leader on the issue • Use the influence of the State Treasurer’s office to ignite change • Continue engaging financial and legislative leaders in the State • Remain engaged in the debate as the session progresses On the Road I will be speaking across the State on this topic over the next several months.

  11. A New Year, New Opportunities Together, we can make 2011 the year of turning critical new year’s resolutions into action. 2011 Call to Action Look boldly toward the future, and do what we know we need to do.

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