Last week South Carolina lawmakers established a state Earned Income Tax Credit (EITC), which makes them the 27th state to do so. The state EITC finally happened when legislators raised the state’s gas tax for the first time in nearly 30 years to raise some much-needed transportation revenue.
The drawback of gas taxes is that they’re generally regressive, meaning that they hit low-income taxpayers’ wallets hardest. So it’s crucial to find a way to balance raising infrastructure revenue with protecting working families.
That’s where the Earned Income Tax Credit (EITC) comes in. It can provide a targeted way to ensure that the tax code doesn’t ask more from low- and middle-income taxpayers.
A refundable EITC — one that allows working families to reduce their state income tax liability and deliver a refund — helps balance out the gas tax’s regressive nature.
South Carolina’s EITC will not be refundable, meaning taxpayers can only reduce their income tax liability to zero. Since most low-income South Carolina families pay little to no state income tax, this EITC won’t really help them. According to the Institute on Tax and Economic Policy (ITEP), “while the gas tax increase will significantly affect nearly all South Carolinians, a non-refundable EITC will only reach about 2 percent of those in the lowest 20 percent of incomes … and only about 11 percent of those in the next 20 percent.”
This should sound familiar to those of us here in North Carolina. Our legislators have cut income taxes at the top while eliminating many credits and deductions, and expanding the sales tax. While they claim that increasing the standard deduction helps low-income taxpayers, it’s actually about as unhelpful as a non-refundable credit. Since it reduces taxes for 70 percent of North Carolina taxpayers, it serves to benefit wealthier and middle-income taxpayers.
A state Earned Income Tax Credit is a critical step towards tax fairness and economic stability. The way South Carolina designed theirs is more of a stumble. The path is clear for the North Carolina House to once again lead in the Carolinas. We just need a better proposal for working and low-income families.