RALEIGH, N.C. (WNCN) — A few lines in Gov. Roy Cooper’s 285-page budget plan drew a lot of attention this week, and it has to do with how much income tax corporations would — or wouldn’t — have to pay on their profits in North Carolina.
Cooper two years ago signed a Republican-crafted budget that put that tax rate on a path all the way to zero by 2030 — a provision he didn’t particularly like at the time.
Now he is recommending that rate instead stay at 2.5 percent for good, and Democrats backed that move earlier this week.
Doing so, he said, will give the state a financial boost in a couple of years. But would the amount of money generated by such a move be worth it?
THE CLAIM: In his budget proposal, Cooper says permanently setting the corporate income tax rate at 2.5 percent “would raise $72 million in (fiscal year) 2024-25.”
THE FACTS: Cooper spokesman Jordan Monaghan says that figure is wrong — it should be $65 million.
That’s what the Office of State Budget and Management and a fiscal team from the North Carolina General Assembly came up with in its consensus revenue forecast, he said.
The year Cooper cited is also the first year the corporate income tax rate would be lowered under the provision in the 2021 budget.
It’s scheduled to drop by a quarter of a percentage point — to 2.25 percent — in 2025. That $65 million represents the difference between how much revenue the state would collect by keeping that rate it where it is versus moving forward with the first of those staggered drops.
That does sound like a lot of money.
But some other numbers at play are exponentially bigger.
A corporate income tax of 2.5 percent typically means about $1.5 billion in revenue for the state.
Corporate income tax collections accounted for 4 percent of the $33.6 billion the state collected in tax revenue in the 2020-21 fiscal year, according to documents published last month by the state Department of Revenue.
And that $65 million in revenue that Cooper mentioned accounts for just 0.2 percent of the $34.2 billion budget he proposed for the 2024-25 fiscal year.
Over two years, the spending plan totals $67 billion.
So that leads leads to a bigger question: In terms of the budget, is that $72 million even a significant amount of money in the first place?
“Not at all,” said Nathan Goldman, a tax expert and associate professor in North Carolina State University’s Poole College of Management.
“If you go and look at the total amount of corporate income tax collections as a percentage of our total budget … it’s always been fairly low,” Goldman said. “That’s something to point out — that giving these additional tax breaks doesn’t necessarily move the needle when it comes down to why corporations would come here.”
North Carolina’s corporate income tax rate has been on a steady decline over the past decade, dropping from 6.9 percent in 2013 to its current rate of 2.5 percent — which, the conservative Tax Foundation points out, is still the lowest among the 44 states that have such a tax.
And long before that tax rate was to be zeroed out, North Carolina had been selected the best state for business last year by CNBC.
The latest budget recommendation from Cooper calls for the removal of the provision in the budget he signed in November 2021 that incrementally drops that rate even further — all the way to 0 percent in 2030. Corporations would, however, pay other taxes.
But Goldman says there is no guarantee that further cuts to businesses’ income tax rate would lead even more of those businesses to relocate to the state.
He points to corporations that increasingly cite factors beyond the tax rate to justify their decisions to set up shop here.
“Perhaps it makes more sense to become more competitive on some of these non-tax-related reasons, such as having higher-quality education and having stronger infrastructure for our state,” Goldman said.