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NC Budget and Tax Center

It comes as no surprise to working families that North Carolina’s tax system is fundamentally unfair. Families who make less than $47,000 a year pay, on average, nearly 2 times more of their income in state and local taxes than those making more than $345,000. But taxpayers don’t have to accept this fundamental unfairness. One of the best ways for our state to improve the fairness of its tax structure is through reinstating a refundable Earned Income Tax Credit.

A new report, Improving Tax Fairness with a State Earned Income Tax Credit, by the Institute on Taxation and Economic Policy shows just how effective a refundable Earned Income Tax credit (EITC) can be in counteracting North Carolina’s upside-down tax code.

Twenty-five states and the District of Columbia already have some version of a state EITC. Most state EITCs are based on some percentage of the federal EITC. The federal EITC was introduced in 1975 and provides targeted tax reductions to low-income workers to reward work and boost income. The federal EITC has targeted income limits to restrict eligibility and better support beneficiaries. By all accounts, the federal EITC has been wildly successful, increasing workforce participation and helping 6.5 million Americans escape poverty in 2012, including 3.3 million children.

In the same vein, states should look to the EITC to improve tax fairness.

North Carolina took that important step in 2007 by establishing an EITC at 3 percent of the federal credit which then subsequently increased to 5 percent. The average refundable state EITC is equal to 16 percent of the federal credit. When state lawmakers allowed our state EITC to expire after 2013, North Carolina had a refundable EITC at 4.5% of the federal credit, well below the average. In North Carolina, as in most states, it would take a fairly significant EITC to begin to offset the upside down nature of state tax codes.

As discussed in this report, lawmakers in Raleigh can take immediate steps to address the inherent unfairness in the tax code by reinstating a refundable state EITC. Ultimately, lawmakers should not only reinstate NC’s EITC but work to make it a higher percent of the federal credit. While it would cost revenue to reinstate North Carolina’s EITC, such revenue could be raised by repealing tax breaks that benefit wealthy taxpayers and corporations, which in turn would also improve the fairness of our state’s tax system.

 

NC Budget and Tax Center

In the past week lawmakers in Connecticut and Maryland have taken steps to strengthen their state Earned Income Tax Credit. And by strengthened, we’re talking increasing the state’s EITC from 25% to 28% of the federal EITC. Meanwhile, North Carolina prepares to enter a legislative short session next week where lawmakers can boast to the claim of being the only state in the nation to eliminate the EITC in nearly 30 years.

North Carolina’s state EITC was a modest boost (starting at only 3.5% of the federal EITC in its inaugural year in 2007 and topping out at 5%) , but no doubt provided an extra couple hundred dollars in the pockets of working poor families to help pay the bills and put food on the table. On the whole, working families in all 100 counties of North Carolina infused over $100 million into the state’s economy in 2012 by spending their EITC to meet immediate needs.

Further, the EITC is one of the most effective child anti-poverty tools in the nation, with the federal EITC alone lifting almost 300,000 North Carolinians out of poverty, half of them children. Paired with a strong state EITC, families who work hard and yet still struggle to get by in difficult times can have the extra boost they need at tax time to make a needed car repair so they can get to work reliably, or pay a utility bill to keep the power on.

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Some of the most damning facts about the state of North Carolina’s tax system and what the most recent changes enacted by state leaders really portend for average families — especially the state’s one-of-a-kind repeal of the Earned Income Tax Credit — were explained at a Budget and Tax Center press briefing this morning. This is from a statement the group released after the event:

“The tax plan passed by the General Assembly during the 2013 legislative session resulted in a tax shift onto working families. Advocates from around the state joined together on Tax Day to bring awareness to the plan, which is bad for working families, children, business, and the economy. Under the new plan, which will took effect in January 2014 and will impact income tax filing in 2015, low- and middle-income families will see their taxes go up on average, while wealthy taxpayers and corporations saw large tax cuts.   Read More

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ff-8292013It’s depressing as hell, but everyone who cares about North Carolina public policy should make this new report by the N.C. Budget and Tax Center’s Cedric Johnson: “Who Pays in 2014″ a part of their Tax Day reading list.

As Johnson reports:

“Changes are coming to who pays taxes in North Carolina, and the news is not good for middle- and low-income taxpayers. This tax season marks the final year taxpayers will file their income taxes under the state’s old tax code and by next year it will be apparent to many taxpayers that the tax plan has not just reduced available dollars for investing in core public services, but also has increased the tax load for many. Read More

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Blue slipIn case you’ve lost count, today is Day #289 on the Richard Burr Blue Slip Watch. It’s been nearly ten months since President Obama nominated federal prosecutor Jennifer May-Parker to fill what is the longest-standing vacancy in the federal court system in North Carolina’s Eastern District. Unfortunately, as we have reported repeatedly on this site, Burr is blocking consideration of May-Parker unilaterally and refusing to say why. It’s a disgraceful situation that is made only worse by the fact that May-Parker would be the first African-American and only the second woman to serve on the federal bench in the Eastern District in its history.

And speaking of inexcusable behavior by North Carolina elected officials, commentator Marena Groll of ENC Weekly did a great job this week of skewering Gov. McCrory and the General Assembly over the state’s worst-in-the-nation tax policy changes.

And speaking of the state’s misguided economic policies, Read More