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Working family tax credits are the tax break we need

The richest 5% of North Carolina households have an average income 28 times greater than the poorest fifth. More than half of the income in our state in 2018 was held by the wealthiest 20% of North Carolinians.

In 2019, before the start of the pandemic, almost one  in three North Carolinians lived below 200% of the poverty line and more than 40% of the people in our state did not have enough assets to make it three months with no income. This is no accident.  

The prevalence of poverty in our state is the result of economic policy- like our upside-down tax code-that drives income to the top while creating barriers to wealth building by withholding support from North Carolinians who are struggling to make ends meet.   

The tax changes over the past eight years have disproportionately benefited the top earners. As a result, the lowest 20% of earners (those making less than $18,000 annually) now pay more than three percentage points more in taxes as a share of their income than the top 20% of earners-meaning that our state tax code asks the most from those who can least afford it.  

North Carolina House and Senate proposals seek to deepen these inequities through even more tax breaks for top earners and large corporations, many of which are headquartered out of state.  

Rather than continue this trend of asking the most from those who can afford it the least, our leadership must prioritize the needs of working families who earn low wages across our state.  

The past year and a half have presented more barriers to financial security for North Carolinians as low-wage industries have been hardest hit by the COVID-19 recession leaving those workers and their families struggling to afford the basics like food, rent and childcare.  

The Earned Income Tax Credit returns to lower wage workers more of what they earn. A refundable and generous credit set at 20% of the federal credit would return an average of $500 of earnings to low or middle wage earning families in North Carolina.

When generous and refundable, these dollars help families afford the basics like more and healthier food and medical care which in turn reduces the toxic stress associated with the struggle to meet basic needs and improves the physical and mental health of both children and parents in claiming families.  

This household budget boost is also a boost to the broader community as EITCs are proven to improve the education and future earnings outcomes of children in families that receive the credit.  

Implementing a state working family tax credit like the Earned Income Tax Credit costs far less than the tax changes proposed by the North Carolina House and Senate and would provide North Carolina families a little help affording what they need to weather this downturn and drive dollars back into our economy.   

North Carolina working families need to get back more of what they earn, and it is time for the wealthiest and big companies to pay what they owe.

Heba Atwa is a policy advocate at the N.C. Budget & Tax Center.

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Working family tax credits are the tax break we need