NC Budget and Tax Center

A better way to fix the tax shift to working North Carolinians

As part of ongoing negotiations to produce a state budget, state lawmakers would like to provide more tax cuts to North Carolina taxpayers. This tax proposal, while unclear in the details (is it another reduction to the already low 5.75 percent personal income tax rate?), would offset the increase in various DMV fees included in the budget passed by House members.

A refundable state Earned Income Tax Credit (EITC) is a great way for state lawmakers to fulfill their desired goal of ensuring working families aren’t paying more as a result of their budget choices. The EITC provides a modest boost to the wages of low- and moderate-income workers, which will help offset additional costs resulting from an increase in DMV fees. Prior to its elimination in 2014, more than 927,000 North Carolinians claimed the state EITC, with working families in each of the state’s 100 counties benefiting from the tax credit.

State lawmakers’ reported agreement to provide $110 million in tax cuts to offset the DMV fee hikes is close to the value of the state EITC. For FY 2013, prior to its elimination, the state EITC cost around $101 million, which is less than the tax cut target agreed to by state lawmakers. The EITC is the best targeted tool to address the upside-down nature of the state’s tax code. Better than an increased standard deduction, the tax credit is proven by years of experience and research to effectively target working families who earn low wages so that they can make ends meet, support their children’s healthy development and boost the economy.

If state lawmakers are serious about correcting the imbalance in the state’s tax code, a refundable state EITC is the most effective way to support children and working families and help spur economic activity in local communities across the state.

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