Bill review: NC H459 Income Tax Rate Reduction Trigger Mods

[PavelMakarchuk]

Bill Review: Income Tax Rate Reduction Trigger Mods (NC H459)

Reform ID: nc-h459 | State: NC
Bill text: https://www.ncleg.gov/BillLookUp/2025/H459
Description: Freezes the North Carolina flat individual income tax rate at 4.25% for tax years 2026 through 2028, preventing the scheduled reduction to 3.99%. Suspends the rate reduction trigger mechanism during this period and reinstates it for 2029+ with a shortened trigger table. Motivated by Hurricane Helene recovery costs (~$59.6B in damage).

Merging this PR will publish the bill to the dashboard.

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What we model

Provision	Parameter	Current	Proposed	Bill Reference
NC Individual Income Tax Rate Freeze	gov.states.nc.tax.income.rate	3.99% (scheduled for 2026+)	4.25% (frozen through 2028)	SECTION 1.(a), amending G.S. 105-153.7(a)

What we don't model

• Rate reduction trigger mechanism (depends on actual future state revenue exceeding predefined thresholds — cannot be modeled prospectively)
• Reinstated trigger table for 2029+ (SECTION 1.(b), amending G.S. 105-153.7(a1))
• The bill's interaction with the NC standard deduction schedule (unchanged by this bill)

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Validation

External estimates

Source	Estimate	Period	Link
NC Budget & Tax Center	>$2B preserved revenue	2025-2027 biennium	Analysis
NC Budget & Tax Center	~$1B/year (2026 cut alone)	Annual	Analysis
Tax Foundation	$2.6–$3.7B for first 0.5pp trigger cut	Full-year	Blog
No official fiscal note	N/A	—	Bill stalled in House Rules Committee after first reading

Note: No Fiscal Research Division fiscal note was published for H459. The bill was referred to the House Rules Committee on 3/20/2025 and did not advance.

Back-of-envelope check

Rate freeze (4.25% vs 3.99% = 0.26pp):
NC personal income tax revenue (FY24-25): ~$17.0B
Implied taxable income base: $17.0B / 0.0425 = $400B
Revenue preserved: $400B × 0.0026 = **$1.04B/year**
NC Budget & Tax Center estimate: ~$1B/year — consistent

PE vs External comparison

Source	Estimate	vs PE (2026)	Difference
PE (PolicyEngine, 2026)	+$930M	—	—
PE (PolicyEngine, 2027)	+$960M	—	—
PE (PolicyEngine, 2028)	+$983M	—	—
NC Budget & Tax Center (annualized)	~$1B/year	-7.0%	Excellent
Back-of-envelope	~$1.04B/year	-10.6%	Excellent

Verdict: PE's $930M (2026) to $983M (2028) is within 7-11% of external estimates (~$1B/year). The slight undercount likely reflects PE's Enhanced CPS microdata having fewer NC filers than actual state tax return data. Revenue grows ~3% per year across the three years, consistent with nominal income growth. The ~$1B/year magnitude is independently confirmed by two sources.

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Key results (by year)

Year	Revenue Impact	Poverty Rate	Child Poverty	Winners	Losers
2026	+$930,188,366	19.22% → 19.25% (+0.01%)	17.69% → 17.72% (+0.02%)	0.0%	65.0%
2027	+$960,475,391	18.96% → 18.97% (+0.01%)	17.37% → 17.37% (0.00%)	0.0%	66.1%
2028	+$982,945,896	18.83% → 18.84% (+0.01%)	17.16% → 17.18% (+0.01%)	0.0%	66.8%

Note: This is a revenue-positive reform (preventing a scheduled tax cut). "Losers" are households that pay more than under current law — i.e., they don't receive the scheduled rate reduction. The slight poverty increase (+0.01%) is expected from the higher tax burden.

Decile impact (2026)

Decile	Relative Change	Avg Cost
1	-0.03%	-$6
2	-0.07%	-$27
3	-0.08%	-$46
4	-0.09%	-$60
5	-0.10%	-$81
6	-0.12%	-$111
7	-0.12%	-$140
8	-0.14%	-$185
9	-0.18%	-$318
10	-0.31%	-$2,122

District impacts (2026)

District	Avg Cost	Winners	Losers	Poverty Change
NC-1	-$225	0.0%	63.7%	0.00%
NC-2	-$386	0.0%	72.9%	0.04%
NC-3	-$143	0.0%	60.0%	0.00%
NC-4	-$189	0.0%	63.3%	0.04%
NC-5	-$193	0.0%	63.8%	0.00%
NC-6	-$170	0.0%	62.9%	0.00%
NC-7	-$247	0.0%	65.0%	0.03%
NC-8	-$316	0.0%	67.2%	0.00%
NC-9	-$187	0.0%	62.5%	0.04%
NC-10	-$200	0.0%	65.0%	0.06%
NC-11	-$199	0.0%	63.0%	0.00%
NC-12	-$369	0.0%	71.6%	0.00%
NC-13	-$321	0.0%	67.6%	0.00%
NC-14	-$189	0.0%	63.3%	0.04%

Parameter changes

Parameter	Period	Value	Bill Reference
gov.states.nc.tax.income.rate	2026-01-01 to 2028-12-31	0.0425 (4.25%)	SECTION 1.(a), amending G.S. 105-153.7(a)

Data quality notes

• Uses PolicyEngine's Enhanced CPS microdata for North Carolina, projected separately to 2026, 2027, and 2028
• This is a revenue-positive reform: the bill prevents a scheduled rate cut, so households pay more relative to baseline
• 65-67% of households are "losers" (pay more) — consistent with NC's broad income tax base (most filers with taxable income are affected)
• 0% winners because the bill only raises the rate relative to baseline; no provisions reduce taxes
• The rate reduction trigger mechanism (conditional 0.5pp cuts if General Fund revenue exceeds thresholds) cannot be modeled — it depends on future economic outcomes
• NC-2 (Charlotte/Mecklenburg area) and NC-12 (parts of Mecklenburg/Cabarrus) show highest avg cost, consistent with higher-income concentrations
• The bill stalled in the House Rules Committee and did not advance; the rate dropped to 3.99% on January 1, 2026 as scheduled under current law

Reform parameters JSON

{
  "gov.states.nc.tax.income.rate": {"2026-01-01.2028-12-31": 0.0425}
}

Versions

• PolicyEngine US: 1.567.0
• Dataset: policyengine-us-data v1.67.0
• Computed: 2026-02-17