NC Budget and Tax Center

Momentum is building in other states when it comes to strong tax credits for working families

Within the last month, policymakers in three states approved tax changes that will strengthen family economic security and support a stronger, more inclusive economy. Policymakers in New Jersey and Rhode Island approved expansions in their state Earned Income Tax Credits (EITC) and California officials adopted its first state EITC, which goes to people that work but earn low wages so that they can better make ends meet and avoid raising their children in poverty.

North Carolina is no longer among the 26 states that have a state EITC. Our state lawmakers allowed the state EITC to expire in 2013 when they enacted deep tax cuts that primarily benefited the wealthy and profitable corporations. The result was a tax shift—away from the wealthy and onto everyone else—that did nothing to improve the financial well-being of people who work hard for low pay and struggle to pay the bills.

On the other end of the spectrum, New Jersey lawmakers approved an increase in its state EITC to 30 percent from 20 percent of the federal credit that will benefit over half a million families. After a cut in 2010, the legislature sought to raise the value back to 25 percent of the federal credit but Republican Governor Chris Christie line-item vetoed the proposal and recommended the larger increase that became law. In fact, after years of resistance, the Governor moved away from favoring larger, across-the-board personal income tax cuts to a more targeted approach that will improve equity without harming revenue stability.

In Rhode Island, lawmakers approved an increase in the state EITC to 12.5 percent from 10 percent of the federal credit, helping 80,000 families. Recently, lawmakers lowered the value of the state credit from 25 percent but made it refundable so that it would be more valuable to workers earning low wages. Making the tax credit refundable helps offset the disproportionate share of income that low-wage workers pay in total state and local taxes—not just income taxes—compared to their wealthy counterparts.

California lawmakers created a refundable state EITC at 85 percent of the federal credit that will benefit 2 million Californians. This tax credit will be available only to very low-income families earning between just below $7,000 to $14,000 based on family size—an income range that is far more restrictive than the federal tax credit levels that most other states follow. Lawmakers have to reapprove and set the credit’s value on an annual basis.

Policymakers in these states join a growing group of policymakers on both sides of the aisle who support sensible pro-work, anti-poverty policies like the EITC. Yet North Carolina’s state legislative leaders and governor refuse to give further consideration to reinstating the state EITC, despite research that documents its effectiveness. Rather, they claim that low-income folks are better off without the EITC due to increasing the standard deduction in the 2013 tax plan.

But that is not the case. Many hardworking, low-income families now see their first dollar taxed sooner than under the previous law when the EITC and personal exemption were in place. As Senate and House leadership seeks to further shift the tax responsibility away from profitable corporations and apply the sales tax to more services, reinstating the state EITC would protect low-income working North Carolinians from yet another tax shift.

One Comment


  1. LayintheSmakDown

    July 9, 2015 at 10:41 am

    Yeah….NJ and CA are far from the models to follow. For NJ in particular, aren’t a huge number of their people the one’s coming to NC to escape the high tax and government perk environment up there? We don’t need to re-create the depressing environment up there by becoming more communistic like the northern states.

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