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Earned Income Tax Credit offers more support for working families than standard deduction proposal

With the inclusion of the Earned Income Tax Credit (EITC) in the Governor’s budget, North Carolina is closer than it has been in years to renewing the most promising state tax program for working families.

North Carolina has one of the highest rates of working poverty in the nation. One in eight North Carolina workers earns poverty-level wages, which for a family of four, is $25,750 — well-below what it takes to make ends meet.

The Earned Income Tax Credit (EITC) is a bottom-up tax cut. While most tax cut proposals disproportionately benefit large companies and the wealthy, the EITC is designed to provide support to families with a maximum household income of just over $57,000 for a family with three or more children (eligibility and amount of the tax credit depend on income level and household size). This roughly lines up with taxpayers in the bottom 60 percent of the income distribution.

Enacting a generous and refundable EITC would cost exactly the same as raising the standard deduction as proposed in Senate Bill 337, but it targets the reduction to those who need the most support. At a time when North Carolinians with earned income below $60,000 have yet to see employment return to pre-COVID-19 levels and those with higher income have fully recovered, North Carolina needs to invest in supporting a more just recovery and target any tax cuts to those hardest hit by the pandemic.

A state EITC is targeted to provide a tax cut to low- and middle-income households, while a standard deduction increase would deliver 24 percent of the tax cut to the top 20 percent of taxpayers.

The standard deduction increase is not as valuable as a state EITC in advancing the outcomes we need to ensure families are healthy, safe, and financially secure.

A North Carolina EITC will help keep people connected to the workforce, help families make ends meet, and reduce poverty. The EITC provides those with very low earnings an increased credit to encourage more work hours. The credit varies depending on family size, recognizing that the more children a family has, the higher their expenses are.

Finally, the EITC helps address the state’s upside-down tax code, which currently demands that the lowest income households pay a larger share of their income than the wealthiest North Carolinians, by providing boost to the families that need it most. And those dollars returned to low- and middle-income North Carolina families will improve the health of both parents and children, improve education outcomes, college enrollment, and future earning potential of children in claiming families.

Heba Atwa is a Policy Advocate with the Budget & Tax Center, a project of the NC Justice Center.

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Earned Income Tax Credit offers more support for working families than standard deduction proposal