NC Budget and Tax Center, Poverty and Policy Matters

Close to one million North Carolinians will claim state Earned Income Tax Credit for last time this tax season

Unless lawmakers reverse course, nearly one million North Carolina families will claim the state Earned Income Tax Credit (EITC) for the last time this tax season—one year after Gov. McCrory signed a bill ending the tax credit, according to a new report from the NC Budget and Tax Center.

In 2013, North Carolina lawmakers put an end to the state EITC, which helps low-wage workers keep more of their income so they can afford basic necessities, like child care, while pursuing deep tax cuts that primarily benefit wealthy individuals and profitable corporations. Combined with the income tax cuts that benefit the wealthy, the loss of the state EITC tilts the tax system even more out of balance. The state’s tax system already asked more from low- and middle-income families than it did from those earning the most, and this makes the disparity even worse. The resulting tax shift is neither true tax reform nor good for North Carolina’s economy.

Lawmakers established the state EITC in 2007 in the middle of two economic downturns and during a period when North Carolina families faced job loss, spikes in poverty, and a boom in low-wage work, the report said. Today, working families continue to face economic hardship, but the state EITC—which is only available to people who work and earn income from wages, salaries, or self-employment—has helped families stay afloat. The state EITC offsets the higher share of state and local taxes low-wage workers pay compared to high-income workers, allowing them to keep more of what they earn.

More than 900,000 North Carolinians claimed the state EITC for tax year 2012, benefiting nearly 1.2 million children. The report includes a chart with county-level impacts of the EITC, including the number of qualifying children. Counties located in the eastern part of the state—which face persistent levels of high poverty—have the highest concentrations of EITC recipients.

The EITC is widely recognized as one of the most effective anti-poverty tools nationwide, the report said. The federal EITC lifted approximately 298,000 North Carolinians—half of whom were children—above the federal poverty line between 2010 and 2012. Similar data is not available on the state EITC, but, like the federal credit, the state credit helps low-wage workers pay for basic needs such as shelter, food, utilities, transportation, and child care. Its loss could push families into poverty at a time when North Carolina already has the 10th highest poverty and child poverty rates in the nation.

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.

The EITC makes a positive difference in the lives of working families with children, especially during the weak economic recovery. Now is the worst time to further shift the tax load onto North Carolina’s lowest-paid workers. It’s not too late to reverse course on the EITC. State lawmakers should reinstate the EITC so working families can continue to claim this modest but critical support during the next tax season.

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