State lawmakers once again turned their back on hardworking North Carolinians who struggle to support themselves and their families with low wages.
Yesterday, just before the House Finance Committee was scheduled to debate an economic development bill, House Bill 89, the sponsor stripped out a provision that would have reinstated the state Earned Income Tax Credit (EITC), a tax break that helps thousands of North Carolinians who work at low-wage jobs. North Carolina’s EITC expired at the end of 2013 when state lawmakers failed to extend it, and this economic development bill would have been the perfect opportunity to bring it back.
The EITC is widely recognized as one of the most effective anti-poverty tools nationwide, especially for children. Nearly 907,000 North Carolinians claimed the state EITC for tax year 2012, benefiting nearly 1.2 million children and providing a $108 million economic boost to local communities across the state.
The bill sponsor, Rep. Moore, informed House Finance Committee members that the state EITC provision was excluded from the revised bill in order to increase the chances of the bill gaining bipartisan support among state lawmakers.
State lawmakers who oppose the state EITC often falsely claim that fraud is associated with the tax credit. However, evidence does not support this claim. Here is the reality:
- The “fraud” rate that opponents highlight is in fact the “error” rate, of which fraud accounts for only a very small percentage of errors.
- Over half of tax filings flagged for errors are ultimately deemed accurate and eligible for the tax credit after they are investigated
- Most low-income taxpayers have their tax returns completed by tax preparers, who are responsible for the errors. Reducing the EITC error rate could be achieved in part by better training tax preparers.
- The EITC error rate is lower than the error rate for businesses filing tax returns
Simply put, the excuses given for not reinstating a state EITC are not supported by evidence.
If the objective is to ensure that we use tax dollars effectively, the EITC is more effective than increasing the standard deduction – which state lawmakers point to as a key feature of the tax plan passed in 2013. Whereas all taxpayers are provided a standard deduction (ranging from $7,500 to $15,000), the EITC is targeted to low- and moderate-income taxpayers – who pay a larger share of their income in state and local taxes compared to the more well-off. Because it is targeted, the EITC costs significantly less than increasing the standard deduction, and does more to make our tax system fairer. Furthermore, a refundable EITC provides dollars that are immediately spent in local economies.
Reinstating a refundable state EITC is an opportunity to address the state’s backwards tax system, which asks average people to pay a higher share of their income in taxes than higher income people. However, state lawmakers continue to dismiss this opportunity and instead pursue more tax cuts for profitable corporations at the expense of hardworking North Carolinians still awaiting their Carolina Comeback. Consequently, this approach continues to shift the tax responsibility to low- and middle-income taxpayers and away from the wealthy and profitable corporations.
The bill’s sponsor, Rep Moore, said yesterday that lawmakers would work to advance a separate EITC bill (HB 27), rather than including it in the economic development bill. The legislature should pursue this path quickly, so hardworking low-wage workers can once again get this much needed and much deserved tax break.
If you would like to learn more about the many benefits of a state EITC, I encourage you to attend an upcoming event on March 31, 2015 in Raleigh.