The recent news of the US poverty rate reaching its second-highest level since 1965 – with the share of Americans living in deep poverty the highest on record – underscores the dire need for tax policies at all levels that work to combat poverty. Yet state and local tax policy in most states actually contributes to increasing poverty rather than lifting families out of poverty. That’s because low-income families in most states pay a larger share of their income in state and local taxes than middle- or high-income households.
Although North Carolina taxes low-income households slightly less heavily than average (due primarily to the state’s relatively progressive income tax and the Earned Income Tax Credit [EITC]), low- and moderate-income North Carolinians still pay significantly more of their income in state and local taxes than high-income North Carolinians.
To rectify the problem of North Carolina’s upside-down tax system, the new report suggests the following strategies to state policymakers:
- Increase the state Earned Income Tax Credit
- Increase the state Child and Dependent Care Credit and make it refundable
- Make the state Child Tax Credit refundable
- Create a Low-Income Property Tax Circuit Breaker
- Create a state refundable low-income credit to complement the EITC
As the report makes clear, fighting poverty with refundable tax credits is a proven, cost-effective strategy with a long history of support from both Republicans and Democrats. Particularly at a time when poverty is increasing at an alarming rate, state policymakers could use refundable tax credits to provide a much-needed boost to families struggling to make ends meet in an unforgiving economy.