NC Budget and Tax Center

The First Fault Lines in the Great Tax Shift

Yesterday, the Senate passed House Bill 82 that would reduce the Earned Income Tax Credit from 5% of the federal credit to 4.5%.  The reduction will impact more than 900,000 working families who earn low-incomes and pay taxes. This decision occurs at the same time policymakers are maintaining tax policies that benefit the wealthiest taxpayers and provide no broader economic benefit.

While this type of bill is entered every session in order to make decisions about how the state tax code will align with the federal tax changes made in the past year, policymakers made some telling decisions in this one.  First, policymakers reduced the Earned Income Tax Credit in order to offset the cost of improvements to the credit that were extended in 2012. Improvements that the state has conformed to in the years since many of those improvements passed under the Bush administration. Second, policymakers decided to conform to a more costly federal tax change that would put in place a higher income threshold on limiting itemized deduction, which will mostly benefit higher income taxpayers. 

On the floor of the Senate, an amendment that would have capped a costly and ineffective business tax deduction passed in 2011 so that taxpayers earning more than $500,000 could not deduct their first $50,000 in pass through business income failed. That amendment would have eliminated the Earned Income Tax Credit reduction, roughly paying for the improvements to the credit for working families by capping the deduction to benefit only taxpayers with less than half a million in income.  Such a cap would have also gotten the business tax exemption closer to targeting those that policymakers who proposed the original legislation claimed to be helping– small businesses.

In the first movements on tax policy this session, it is clear that policymakers shifted the tax load to low-income working families.

 

 

6 Comments

  1. Doug

    March 7, 2013 at 6:27 pm

    Gotta stop giving away the freebies. In my days of preparing taxes I saw several families get a refunded credit. The only thing was that these families made a pretty good living, new cars, nice home. It was not intended for that purpose.

  2. david esmay

    March 8, 2013 at 9:59 am

    Doug’s right, we’ve got to eliminate tax exemptions for the wealthy and corporations and start making them actually pay taxes.

  3. Doug Gibson

    March 8, 2013 at 12:59 pm

    David’s right. Let’s start with that “small business” tax cut that reduced the amount of tax rich lawyers paid by $3500 last year. Because the only thing that’s doing is allowing those lawyers to earn a fabulously great living, new cars, enormous homes. It was not intended for that purpose.

    Or at least no Republican in the General Assembly is prepared to admit that’s what the purpose was.

    And Doug, the EITC was conceived precisely as a way of making sure that those who worked hard for below average wages made “a pretty good living.” It’s not a freebie either. Or if it is, it’s a freebie for employers who can’t manage, for whatever reason, to pay their workers what they deserve.

    Oh, and geez. Someone takes their hard-earned money, combines it with the less-than-enormous EITC, and then uses it to lease a Kia and put a down payment on a “nice” home (which makes their housing cheaper than renting, probably), and you’ve got a problem with that? Why, exactly?

  4. Doug

    March 8, 2013 at 2:46 pm

    This is true. Once we get the freeloaders to the right level. We can get to the people who create jobs and actaully pay taxes to be sure their taxes are lowered. Good point Doug (G).

  5. Doug Gibson

    March 9, 2013 at 11:08 am

    Doug,

    They’re not freeloaders. By definition, someone receiving the EITC is earning income.

  6. Doug

    March 10, 2013 at 9:05 am

    And getting back an amount over and above what they pay in…so freeloaders.