Members of the North Carolina General Assembly debate income tax triggers.
As governors and legislative leaders around the country make progress toward income tax elimination, a debate is raging in North Carolina, the state that kicked off a nationwide push toward lower and flatter state income tax rates, over whether the state’s march to a 2.49% income tax rate, which would be the nation’s lowest single rate, should be paused or delayed. If North Carolina lawmakers decide to alter their existing revenue trigger schedule for income tax relief, Americans for Tax Reform is urging lawmakers to at least maintain the ultimate goal of getting the income tax rate below 2.5%.
North Carolina’s flat income tax rate fell from 4.25% to 3.99% on the first day of 2026 and is on track to fall again to 3.49% on January 1, 2027. However, analysis recently commissioned by the Carolina Leadership Coalition (CLC), a non-profit affiliated with the North Carolina House Republican Caucus, makes the case that North Carolina lawmakers should adjust existing revenue triggers so that higher revenue collections are required in order for further rate reduction to be triggered. House Republicans’ push for such a change and Senate Republicans’ preference for scrapping the triggers altogether so that further income tax relief is a certainty, has been the crux of North Carolina’s ongoing budget standoff.
Though Senate Republicans are portrayed as defenders of existing revenue triggers, it’s worth remembering that the only reason the triggers were implemented in the first place was to get the House on board with further income tax relief. The Senate’s preference was always to take the rate down further without the contingency of revenue triggers.
“The eventual target, a 2.49% flat-rate individual income tax, would further enhance North Carolina’s tax competitiveness, resulting in what would currently be the lowest top or single-rate individual income tax rate in the country,” wrote Jared Walczak, president of Walczak Policy Consulting and the author of the CLC-commissioned analysis. “Given North Carolina’s success to date, there is reason to believe that target is in reach.”
Though Walczak likes the direction of the income tax rate reduction enacted in North Carolina, he argues that the triggers established in 2023 “are a poor way to get there.” In particular, Walczak is critical of the way in which the existing revenue triggers would result in further income tax rate reduction even if revenue were to grow more slowly than population growth and inflation.
Lawmakers will seek to reach a budget agreement when the General Assembly reconvenes in Raleigh later this month. Americans for Tax Reform will be urging North Carolina lawmakers to work to reach an agreement that ensures that, even if income tax rate reduction is slowed, it is not blocked and that the 2.49% target rate will still ultimately be achieved.
“North Carolina is poised to continue leading the nation in pro-growth tax reform as it continues phasing down its flat income tax rate,” said Grover Norquist, president of Americans for Tax Reform. “Oddly, some politicians and interest groups want to stop North Carolina’s progress and allow other states to jump ahead in the competition for new business, investment capital, and talent.”
Recent actions across the border in South Carolina, along with similar developments in other state capitals, should erase any doubt about the need for continued income tax rate reduction in North Carolina. South Carolina lawmakers enacted legislation last month that will move the Palmetto State to a flat 1.99% income tax in five years. What’s more, that reform also includes revenue triggers to completely phase out South Carolina’s income tax over time.
“North Carolina should reject all lobbyist efforts to concede the future to the nearby states of South Carolina, Florida, Tennessee, and Georgia,” Norquist added. “Revenue triggers to ensure that the income tax continues on a reasonable and consistent path downward should be protected from spending interests.”
In addition to ensuring that any adjustments to existing revenue triggers do not prevent North Carolina from eventually getting its income tax rate below 2.5%, Americans for Tax Reform also encourages lawmakers to consider cutting the state’s constitutional income tax cap to at least 4.0%. Doing so would raise the bar to hike North Carolina’s income tax in the future, helping to enshrine the tax relief and code improvements that lawmakers have worked hard for more than a decade to establish.
In 2018, more than 57% of North Carolina voters approved a constitutional amendment to reduce North Carolina’s income tax cap from 10% to 7%, where it stands today. The large margin of support for the last cut in the income tax cap, which isn’t providing much protection since it’s more than three percentage points above the existing income tax rate, suggests that putting another income tax cap reduction on the 2026 ballot wouldn’t just be great policy, it would be smart politics.
