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Legislators poised to reduce NC Earned Income Tax Credit despite its powerful anti-poverty impact

This afternoon, legislators serving in the NC House are scheduled to approve HB 82, a bill that would reduce the state Earned Income Tax Credit (EITC) from 5 percent to 4.5 percent of the federal credit for tax year 2013. Worse yet, legislators have already stated that they will not extend this important tax credit beyond its sunset date at the end of the year. Doing so would shift the tax load to the state’s lowest-earning families and could push more North Carolinians into poverty, according to a new report [1] released today by the NC Budget and Tax Center.

North Carolina’s tax system does little to help low-earning workers and their children who are living on the margins; it actually makes it harder for them to meet basic needs. Even with the state EITC—which provides workers earning low wages with a credit to offset their total state and local tax contributions—moderate- and low-income working families still pay a greater share of their income in state and local taxes compared to the upper-middle class and wealthy. As policymakers consider changes to the state’s tax code this legislative session, it is critical to maintain this important tax-equity tool.

Beyond serving as an important tax-equity tool, the state EITC also delivers a powerful anti-poverty effect, especially for the state’s children. North Carolina already has the 13th highest poverty rate in the nation, with more than 1 in 4 of its children living below the federal poverty line. Child poverty rates for children of color hover well-above the state rate, approaching nearly 1 in 2 kids of color in some of the state’s counties. The federal EITC lifted approximately 293,400 North Carolinians—half of whom were children—above the federal poverty line during the 2009-2011 period.

Similar data is not available on the state EITC, but we know that children benefit when they live in families with adequate resources to meet their basic needs. Dollars from the state EITC are often spent on everyday purchases such as food, childcare, education expenses as well as rent, home repair, and debt—making it easier for North Carolinians to keep working while also taking care of their children.

For young children, moving out of poverty is particularly important because poverty impacts the architecture of their developing brains [2]. Research has found that lifting income in early childhood not only tends to improve a child’s immediate educational outcomes, but is associated with more schooling, attachment to the labor force, and higher earnings in adulthood. Here are two ways the EITC impacts children:

The EITC is making a positive difference in the lives of working families with children, especially during the weak economic recovery. Now is precisely the wrong time to take away this support for low-income workers.