Forty years ago, President Gerald Ford signed into law a tax policy that would support working families earning low-wages. That policy, the Earned Income Tax Credit, would later be expanded under President Ronald Reagan. Today, it has proven to be a powerful anti-poverty tool supporting the economic security of more than 30 million Americans in last year alone.
The credit does more than just fight poverty though. It supports the shared goal and urgent need for economic mobility. Here’s how:
- The EITC is a temporary support to working families earning low-wages. It is often claimed for just two or three years and bridges the gap between basic needs and earned income to help families so they are less likely to get pushed into poverty by low-wage work.
- The EITC helps at every stage of life but particularly children achieve better lifetime outcomes. Research into the credit has shown it improves educational outcomes of children and increases their college enrollment while also increasing work and lifetime earnings in the next generation.
- The EITC supports long–term financial planning. Emerging research shows that the way in which the credit is delivered at tax time encourages families’ to meet basic needs and plan for the future by providing the opportunity to consider the long-term investments that are needed for their families’ economic security.
The federal Earned Income Tax Credit is working hard to make work pay. However, it cannot alone address the greater barriers to economic mobility in states like North Carolina and thus should get a boost from a state version of the credit. North Carolina had a credit for working families until last year when lawmakers allowed it to expire under tax changes passed in 2013.
The barriers to economic mobility in the South and North Carolina are well documented—a preponderance of low-wage jobs, a history of unequal accumulation of wealth, and a failure to build out a strong infrastructure of opportunity in all communities through quality education, for example. The result, according to data from 2012, only 26 percent of North Carolinians were upwardly mobile compared to 34 percent of Americans.
In combination with the fact that our tax system remains upside-down, asking more in state and local tax contributions than the wealthiest taxpayers, a state Earned Income Tax Credit would go a long way in strengthening families and the economy by improving economic mobility and supporting an adequate, equitable tax code.
The evidence of forty years is a terrible thing to waste. Today, on EITC Awareness Day, North Carolina can reflect on the good that the federal credit has done but should lament the loss of a proven policy to help working families in the elimination of our state credit. It is time to recommit to establishing a strong EITC in North Carolina again.