April 18, 2011

Senator Bob Rucho

North Carolina General Assembly
300 N. Salisbury Street, Room 300-A
Raleigh, NC 27603-5925

Senator Rucho:
My Center’s research team has completed a rigorous analysis of the North Carolina tax policy
changes you are considering. That analysis is described in detail in the attached report. I am
providing a summary of our findings here.
Proposed Tax Policy Changes
Our analysis estimated the employment effects of the following tax policy changes:
• Expiration of the temporary 1-cent sales tax
• Expiration of personal and corporate income surtaxes
• Reduction in the corporate tax rate to 4.9% effective tax year 2012
• Reduction in business income taxes for S-corporations, limited liability corporations
(LLCs), and sole proprietorships, including exemption of the first $50,000 in non-passive
business income from taxation.
Estimated Economic Effects
The proposed tax policy changes will have both short term and long term effects. Over the next
two years the proposed changes will positively stimulate the State’s private sector economy as
citizens and businesses retain and use money that otherwise would have been paid as taxes.
Once the tax reduction impacts are fully realized in fiscal year 2012-2013, the proposed tax
changes will result in base level economic effects including:
• $2.3 billion in increased NC industry output;
• nearly $700 million in new NC labor income; and
• creation of almost 20,000 new private sector NC jobs at an average wage of $35,969
We anticipate additional short term job creation depending on the pace of the overall economic
recovery and the individual decisions made by the half million businesses across North
Carolina. In both the short and long term the State should also gain more jobs through
relocations of new employers attracted in part by a more competitive tax environment. While
such job gains cannot be forecast, the overall effect of the proposed tax changes can be
assumed to enhance North Carolina as a location for both existing and relocating employers.
Economic Competitiveness Concern
In addition to the proposed tax changes, it is critical that the legislature address policies to
restore the State’s long term economic competitiveness. For several decades North Carolina
had been a national leader in job creation. As recently as the 1990’s North Carolina’s
businesses – large and small - added an average of 66,000 new jobs each year. But over the
past decade, despite large investments in economic development programs, organizations and
incentives, the State actually lost an average of 9,000 jobs each year.
The legislature can be proud that large companies looking to relocate have ranked North
Carolina #1 in “Site Selection” magazine 9 times in the past decade. But it is very clear that
economic development “success” is not the same as a healthy economy. In the long term it is
critical that the legislature combine “economy positive” tax policy revisions with thoughtful,
effective decisions on education, regulation, transportation and other policy areas to restore
North Carolina’s attractiveness for all types and sizes of businesses.

Thank you for this opportunity to serve the legislature and the North Carolina citizens you
represent. I will be pleased to provide additional information as you desire.

Best wishes in your ventures,

Brent Lane
Director
UNC Center for Competitive Economies