NC Budget and Tax Center

Finance Committee Increases Tax Load for Working Families, Cuts EITC

This morning, the House Finance Committee voted to reduce the state Earned Income Tax Credit (EITC) provided to low-income working families across the state. More than 883,000 North Carolinians claimed the credit in 2010, which provides working families with dollars to spend in their local communities. Each year the state updates its tax code to address changes made to the federal tax code during the previous year, as North Carolina’s tax code is linked to the federal tax code.

Improvements to the federal EITC were extended as part of the fiscal cliff deal, including eliminating the marriage penalty and extending the credit to larger family sizes. In decoupling the state credit from the federal credit, the Finance Committee voted to reduce the state EITC from 5% to 4.5% of the federal credit for tax year 2013. The result is a cut of $11 million to the state credit.

The EITC helps boost the wages of low-income families and helps them pay for basic necessities. Cutting the tax credit will further challenge the ability of these families to make ends meet and minimize its ability to address the upside down nature of our state and local tax system. The House finance committee also voted to cut the Work Opportunity tax credit. However, the committee did vote to increase the amount of itemized deductions that individuals can claim, which would largely benefit high-income individuals.

8 Comments

  1. chrismckinley

    February 13, 2013 at 5:21 pm

    While the ETC certainly can be an important financial support for low income families, its lack of accountability is where the problem lies. People are free to spend the money anyway they want and that should not be the case with a program of this nature.

    There are clearly households who utilize this benefit appropriately to bridge their income deficiencies in meeting necessary expenses such as food, housing, clothing, etc… And I believe the vast majority of Americans support that endeavor.

    The problem is that without a reasonable process to ensure that these entitlement dollars are being used for those purposes, the potential for both abuse and misuse is fairly evident.

    There are significant numbers of recipients that spend this on lotteries, alcohol, big screen TVs, drugs, and other items that have absolutely nothing to do with ETC’s intended goal. This is what opens it up to criticisms and legislative action.

    Perhaps the ETC could be issued as an EBT card that can only be used for designated expenditures such as food, medical, etc… This way it could prove its effectiveness and perhaps generate the support it needs from the general public.

    But as it stands now, it is just too open ended and that’s its major problem. Too many people justifiably see an unaccountable government program that is structured as nothing more than a government giveaway or a transfer of wealth without clear purpose. That could change if legitimate concerns were given reasonable consideration versus political denials (it goes both ways on that point).

  2. gregflynn

    February 13, 2013 at 7:26 pm

    The EITC rewards the working poor for … working. That’s why it’s called the Earned Income Tax Credit, “the best antipoverty, the best pro-family, the best job creation measure to come out of Congress” according to Ronald Reagan. EITC has a clear purpose. Should we have mandatory drug testing for people who take the mortgage interest deduction? I’ve known yuppies who wasted money on pot and cocaine and things that have nothing to do with home ownership. The EITC provides an incentive to work and a glide path to higher incomes.

  3. chrismckinley

    February 14, 2013 at 10:42 am

    One issue has nothing to do with the other with respect to structural deficiencies and focusing on intended benefits, outcome, and solutions.

    I for one do not support tax payers subsidizing million dollar homes. But that is another matter all together.

    There are legitimate concerns about some of the program’s delivery. Ignoring or disregarding them by deflection does more long term damage to the program as it builds unnecessary negative bias.

    That’s how good programs get knocked down.

  4. david esmay

    February 14, 2013 at 1:25 pm

    So Chris, you’re suggesting big intrusive government for poor people, and small government for those wealthy enough to qualify for special tax exemptions?
    By your logic, if you wear a white collar it’s perfectly justified if you game the system. If you’re poor, the terms will be dictated for you.

  5. chrismckinley

    February 14, 2013 at 1:42 pm

    How you came to that conclusion from my posting is beyond me. I see no reference to small government or wealthy exemptions. That statement is a pretty big leap of subjective judgment. I do not believe that I suggested anything along those lines. Those are your words and your perspective. Not mine. I must admit that I for one am a terrible “reading between the lines” person so I try at all times not to infer what I think people are saying versus what was actually said.

  6. Mary

    February 14, 2013 at 2:07 pm

    I think this conversation has gotten off track. If we take a look at the tax code, it is used all the time to the benefit of certain groups and for a wide variety of reasons; i.e. the home mortgage deduction for homeowners of both first and second homes, a tax cap on the purchase of high valued cars, the cap on the FICA tax, lower rates on capital gains and dividends. Even boat owners get a break.
    It is hard for me to imagine that anyone would begrudge working class families with children making working class wages a meager tax break – after all they pay their taxes too and shouldn’t they get a break now and then?
    Have a heart – it’s valentines day after all.

  7. david esmay

    February 18, 2013 at 10:30 am

    Chris, I was merely inferring that your image of people receiving EITC spend it all on drugs and big screen tv’s is an unfair assessment of how these funds are spent and to monitor it would indeed be an intrusion.

    We have five kids, four now grown, but there was a time when we qualified for the EITC, much of it went to orthodontia, clothes, or car repairs. I think the percentage of people who waste that money is much smaller than you think.

  8. steve henderson

    February 18, 2013 at 11:04 pm

    my wife and i knew a lday who while she did work and stopped as soon as she got the the minimum limit line..then claimed on her fed/state returns family members she legally wasn’t allowed to take..for the next 2 years we won’t have to worry..seems she stole some rich persons ID and got bust and in prison for the next 2 ywars..and in case you wanted to know..for the last 3 years she did file and get it..it was for 6000.00 each of the 3 years she files..and in this case she did buy some drugs..as we used to look out and babysit her 2 kids..so and yes…it is being abused MORE than many of here think…imagine how any illegals who do work here even illegally who have kids here really go for the EIC ..and get large refunds they normally wouldn’t getting…