NC Budget and Tax Center

Some simple NC tax code changes that could improve children’s lives

North Carolina is underinvesting in the programs and services during early childhood that have proven to prepare children for Kindergarten and to read by third grade, protect them from abuse and prevention, and ensure their healthy development.  The Week of the Young Child represents an opportunity for North Carolina leaders to assess all that they are doing to improve the outcomes and well-being of the state’s youngest residents.

Better investments aren’t the only way that North Carolina policymakers can support early childhood: tax policy is a tool that can help working families and children in particular. North Carolina has an opportunity do far more in this space, particularly in light of the strong evidence that shows the value of tax credits for working families can generate greater returns for more families and communities.

The Earned Income Tax Credit and the Child Tax Credit have been demonstrated to support children’s healthy development and the affordability of their early care and education even as they both promote work and reduce poverty as well.  To improve upon the benefits of these federal policies, North Carolina can enact a state EITC and make the current state Child Tax Credit refundable and targeted to middle and low income taxpayers who struggle the most to provide for their families on low incomes.

The Child and Dependent Care Credit is yet another tax policy that supports children’s healthy development by making child care more affordable.  The recommended biennial budget recently proposed by Governor Cooper includes such a tax credit that partially offsets employment-related expenses for child and dependent care. Childcare costs represent the largest component of the household budget and impact the ability of individuals to work and provides for their families.

The inclusion of the tax credit in the Governor’s budget is as a positive step forward to address an upside-down tax system and ensure that the state’s tax code works for all North Carolinians. It’s one that should serve as the foundation for action by the North Carolina General Assembly to enact tax policies that support young children’s healthy development and the economic security of their families. Making these tax policies refundable and available to the state’s poorest children and families will generate the greatest return. As research has shown, an additional $3,000 in the household during early childhood has a significant effect on children’s educational attainment and lifetime earnings.

An investment in young children is a concrete investment in North Carolina’s future.

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