Americans have been warned that U.S. dominance in the world’s economy is fading because of the country’s poor educational performance. North Carolina falls in the bottom 10 states for the percentage of students graduating. During the 2006-07 school year, over 22,000 students in grades 9-12 dropped out of school in North Carolina. Dropouts cost North Carolina millions of dollars each year. The cost includes at least $169 million annually in taxes and public spending. High levels of poverty and low income housing have long been viewed as a stimulus to the increase in the number of high school dropouts. To address this issue, educators, policy makers, community and business leaders are examining ways to reduce the number of dropouts in every county. This paper examines some of the economic and demographic factors that influence the number of dropouts in North Carolina High Schools. The number of dropouts by county was regressed on factors such as county gross tax revenue, per capita income, minority population, and poverty rate in a panel data setting. Results indicated that almost all factors strongly affect the number of dropouts. As expected, percent minority population and its associated high poverty rates positively affect dropout rates. However, a county with a larger tax revenue base is more likely to have more dropouts than a county with a smaller tax revenue base. This result is consistent with the current trend in North Carolina. The number of dropouts is higher in urban counties than rural school systems.