In the 2011 budget, the North Carolina General Assembly created a deduction for the first $50,000 in non-passive income for businesses filing through the personal income tax. Proponents of the temporary tax break intended it to provide tax relief to small businesses and support job creation. However, in recent months there has been considerable debate over the business tax deduction and its ability to deliver on this promise, as well as its actual cost and its impact on businesses and the economy.
The Budget & Tax Center has taken a deeper look at the tax deduction in light of this debate and the upcoming discussion on modernizing the state’s revenue system. The analysis finds this business tax deduction will not generate the promised job creation and fails to target small businesses struggling in today’s economy—at a cost to the state that is likely higher than was originally estimated.