False claims abounded this morning in support of the House Finance Committee’s rejection of restoring the state Earned Income Tax Credit, which would have helped working families make ends meet and undone some of the damage from the tax plan adopted last year. The Earned Income Tax Credit is a proven tool to help working families make ends meet and move up the economic ladder. In North Carolina, nearly 1 million taxpayers received the state Earned Income Tax Credit.
Led by House Republicans, the committee defeated a restoration amendment, voting against a measure to support North Carolina’s lowest paid workers. Here is a look at the false claims tossed around today, followed by the reality.
- Those opposed to restoring the state EITC said the tax credit isn’t necessary because the point of the EITC is to offset taxes paid at the federal level like FICA taxes. REALITY: the state EITC plays a powerful role in offsetting the impact of state and local sales tax. An EITC at the state level is the most effective, most sharply focused way to counteract the situation today where the lower your income is the higher percentage of it you pay in state and local taxes.
- Those opposed to restoring the state EITC claimed that taxpayers have gotten a reduction in their sales tax. REALITY: the 2013 tax plan extended sales taxes to more goods and services, increasing the amount of sales tax paid by many consumers not the rate. The reference here is likely to the expiration of the temporary sales tax and high-income surcharge that was put in place to provide a more balanced approach to closing significant budget shortfalls brought on by the job loss of the Great Recession and revenue collapse. This was a temporary sales tax set to expire.
- Those opposed to restoring the state EITC claim that it works against “empowering” people to work, earn money, and support their families. REALITY: the state EITC only goes to families and individuals who work. And it builds on the success of the federal credit at moving people into the workforce, especially single mothers who struggle to raise their children and hold down a job when affordable child care is out of reach. Here is how the respected Center on Budget and Policy Priorities particular research findings for the benefits to women and children: “Women who benefited from those EITC expansions also experienced higher wage growth in subsequent years than did otherwise similarly situated women. And, by boosting the employment and earnings of working-age women, the EITC boosts the size of the Social Security retirement benefits they ultimately will receive. In addition, the research shows that by boosting the employment of single mothers, the EITC reduces the number of female-headed households receiving cash welfare assistance.”
- Those opposed to restoration of the state EITC claimed that they already did enough last year to help working families. REALITY: the 1 million working families who will lose the state EITC will see their taxes go up. The net impact of changing the standard deduction and increasing in the Child Tax Credit by $25 and making all the other tax changes is still an increase in taxes for some taxpayers. For example, a married couple with two kids earned around $23,400 in taxable income before paying income taxes under the old tax code. Under the new tax plan that family will begin to pay state income taxes once it earns around $19,400 in taxable income.
Finally, the state EITC restoration would have been paid for by reducing the size of the tax cut for large, profitable corporations from a rate reduction of 6 to 5 percent to a rate reduction of 6 to 5.6 percent.The amendment would put greater balance into distributing the benefits of the tax plan passed last year.
BOTTOM-LINE REALITY: Supporting low-income working families is more likely to strengthen the economy than providing large, profitable corporations with a tax cut that they aren’t likely to spend locally or use to expand their payroll in the state.