NC Budget and Tax Center, Poverty and Policy Matters

Deep tax cuts make it harder to fight child poverty, boost economic mobility

North Carolina 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. Our state also faces widespread income inequality and less economic mobility than the nation and the southeastern region. Rather than pursue a mix of tax and budget policies that boosts economic security for middle-class and low-income families, state lawmakers instead enacted a tax plan that shifts taxes away from the wealthy and towards the bottom 80 percent of taxpayers, on average.

The tax plan drains $525 million in available revenue for public investments over the next two years—a figure that balloons to at least $650 million within five years.

Consider what could have been done to help improve a child’s shot at the American Dream if state lawmakers didn’t choose to cut taxes for the wealthy and profitable corporations. Over the next two years, these dollars could have been used to provide a package of poverty-busting and mobility-lifting investments such as:

  • Eliminating the waiting list for the North Caroline pre-Kindergarten program;
  • Keeping and strengthening the state Earned Income Tax Credit, which helps boost the income of families who work in low-wage jobs;
  • Maintaining the income tax deduction for contributions to North Carolina’s 529 college savings plans (which was eliminated in the tax plan); and
  • Maintaining funding for the 10 nonprofits that promote economic development in economically lagging and distressed communities across the state – these entities include the Institute of Minority Economic Development and its Women’s Business Center

Despite lawmakers’ assertions, academic research simply lacks consensus on whether cutting taxes is an effective strategy for boosting the state’s economy and creating more jobs.  However, an established and growing body of research exists that show the value of public investments, which serve as the building blocks of a strong economy and family economic security.

In terms of getting the best bang-for-your-buck investments, early childhood education tops the list. It can set young children up for greater success throughout their childhood into adult life. Research shows that for the youngest children, the effects of poverty are literally built into the architecture of their developing brains and this impacts their chances at success in school and on the job. Such findings are alarming in the face of such high poverty rates among Tar Heel children under 5 years old (see chart below). The research reinforces the importance of enriching curricula offered in early childhood education. Yet, the current state budget funds fewer pre-k slots than were available during the previous fiscal year.

MiniGraphic_Child Poverty by Race

Research has also found that lifting income in early childhood not only tends to improve a child’s immediate educational outcomes, but is associated with more schooling, greater attachment to the labor force, and higher earnings in adulthood. This is more reason to not only maintain, but also strengthen the state EITC. It’s not too late to reverse course. Legislators can reinstate the EITC during the short legislative session that begins in May. Tell them to do so here.

Location also matters for opportunity, as a child’s ability to climb up the income ladder is influenced by where they are raised. Living in areas of concentrated disadvantage while being poor can undermine one’s health and economic opportunities. North Carolina can build a more prosperous state in part by lawmakers ensuring that ladders of opportunities are extended to all communities in our state.

Better choices were available that help fight poverty and boost economic mobility rather than shifting taxes away from the wealthy and profitable corporations and towards working families—a move that will only likely further grow the income divide. This choice does not promote economic opportunity and shared prosperity for all North Carolinians.

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