NC Budget and Tax Center, Poverty and Policy Matters, Uncategorized

Policy matters for poverty in NC: The Earned Income Tax Credit

Poverty continues to impact 1 in 5 North Carolinians, according to 2012 Census Bureau Data released last week. The extent of poverty would be far greater without the safety net and work supports, however. This post is part of a blog series that will explain how the new poverty data demonstrates the important role public programs play and the need for continued support. See our posts on the Supplemental Nutrition Assistance Program, Social Security, and Unemployment Insurance.

Despite economic growth from 2011 to 2012, North Carolina saw no meaningful improvement in either poverty rates or household incomes over the same period. New US Census data shows that safety-net programs, such as the Earned Income Tax Credit (EITC), blunted the extent of poverty’s reach across the United States. If not for the federal EITC, an additional 5.5 million Americans—including 2.9 million children—would have lived in poverty last year.

The EITC goes to families that work but struggle to get by on low wages. It helps them pay for basic necessities, reduces child poverty more than any other program, and improves kids’ chances of success as adults. The tax credit’s anti-poverty effect is not yet available for North Carolina or other states but we do know that it lifted approximately 293,400 North Carolinians—half of whom were children—out of poverty during the 2009-2011 period.

We also know that state EITCs build on the success at the federal credit. Yet, state lawmakers enacted a tax plan that allows North Carolina’s EITC to expire at the end of 2013. Nearly 907,000 North Carolinians claimed this credit in 2011, but with the EITC’s loss, many of these working families will face an even more lopsided tax system that asks more from them and less from the wealthy.

Children will feel the impact too because they benefit when they live in families with adequate resources to meet their basic needs. North Carolina already has the 10th highest poverty rate in the nation—down from 13th last year—with more than 1 in 4 of its children living below the federal poverty line. For young children, moving out of poverty is particularly important because poverty impacts the architecture of their developing brains. 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.

Reversing these economic trends requires adequate and long-term investments in education, good jobs, and family economic security. Meanwhile, the Census data confirms that national and state policymakers should be careful not to further dismantle the EITC and other work supports that are working around the clock to fight persistently high rates of poverty.

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