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North Carolina Policymakers Could Use Tax Code to Fight Rising Poverty

A new report [1] by the good folks at the Institute on Taxation and Economic Policy [2] provides a clear roadmap for how state policymakers can use smart tax policy to fight poverty.

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 [3] – 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 [4] 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 [5] 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:

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.