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.

Automatic payments ensure cash assistance reaches families most in need of support

Cash assistance allows low-income families to pay for crucial essentials and relieves the damaging stress that results from struggling to make ends meet with inadequate resources. That stress is known to have lasting negative impacts on children’s health and brain development. Adequate cash assistance directed at families living in poverty can improve children’s health, as well as their academic and future economic outcomes. 

However, maximizing the positive impacts of cash-assistance programs requires that families living in poverty can access them. To assist families with the cost of at-home instruction during the pandemic, the NC General Assembly passed legislation to provide $335 to eligible families with children in the form of an Extra Credit Grant Program. A recent State Auditor’s report on the program reveals that a significant number of eligible families missed out on the payment. Families that filed a 2019 tax return received the payments automatically, but families who did not file a tax return because their gross income was less than the filing threshold were required to fill out an application rather than receiving an automatic payment. 

A special data request from the NC Department of Revenue showed that 157,000 families who received Extra Credit Payments in the last round had incomes so low that they were not required to file income taxes. Since the Extra Credit Grant Program has been extended through May 31 and a proposal is on the table to further extend the deadline in the Senate, the Department of Revenue is working with United Way’s network of direct service providers on outreach to increase awareness among low income families.

But for families with very low incomes, it isn’t just access to the Extra Credit Grant Program and ad hoc partnerships that could ensure their access to federal Economic Impact Payments and expansions of the Earned Income Tax Credit (EITC) and Child Tax Credit. A more systemic investment in the infrastructure that can connect people to these programs and a community-driven public awareness effort akin to the efforts around vaccination should be a priority in North Carolina. 

The State Auditor’s report recommends that any future cash assistance programs use all available information to administer automatic payments to ensure that the state’s lowest income families are included. Specifically, the report suggests using information available to the state through public assistance programs such as Medicaid, the Supplemental Nutrition Assistance Program (SNAP) and the Temporary Assistance for Needy Families (TANF) program to identify eligible families. 

The Justice Center’s work has identified the potential of investing in community-based organizations as trusted connectors to families in need and the role of health care providers as a source of information about income supports and working-family tax credits. This is consistent with the work underway at the NC Department of Health and Human Services to advance healthy opportunities and a culture of health. Awareness, however, must be coupled with systems that remove application barriers and reduce eligibility restrictions so that these critical programs can deliver the greatest benefit to the most families and in turn, benefit our economy.

In some states, legislation requires the state to make efforts to increase awareness of working-family tax credits, like the EITC and to provide free tax preparation to increase participation in programs that provide income support to families. 

  • Arizona: The Department of Economic Security is required to provide information on the EITC to all child-care subsidy recipients. 
  • Maine: The state DHHS is required to advise TANF beneficiaries about eligibility and claims for EITC. 
  • Oregon: The state Bureau of Labor and Industries requires employers to provide written notice of EITC and provides information about the credit to those receiving unemployment insurance. 
  • Texas: The state appropriates funds to support free tax preparation sites. 
  • Virginia: The state appropriates funds to support nonprofit efforts to provide information and education on the EITC and free tax preparation services. 

Currently, a version of this model exists at the Mountain Area Health Education Center (MAHEC) in Asheville that works to bridge the gap between health-care workforce development and the need for quality primary and behavioral health care among the state’s underserved children and families — while also serving as sites for free IRS-certified Volunteer Tax Preparation Assistance. With a modest budget of $20,000, the MAHEC site returned at least $175,000 back to working families. 

Right now, North Carolina has the opportunity to invest in an infrastructure that will connect people to the programs and income supports for which they are eligible and which will help them make ends meet. Appropriating dollars now to ensure that tens of thousands more North Carolinians are able to access quality free tax preparation and take advantage of the federal working-family tax credit expansions and Economic Impact Payments will benefit the financial security, health and well-being for parents and children in the long term and ensure our state secures a full, inclusive economy as we move out of this downturn.

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.

American Rescue Plan means help putting food on the table for North Carolinians

The COVID-19 public health and economic crisis has resulted in significantly elevated levels of food insecurity. Millions of Americans, including disproportionate numbers of children and Black and Latino households, have struggled to afford enough food over the past year.

Nationwide, the number of households who are not getting enough to eat has remained at nearly three times pre-pandemic levels. As the Center on Budget and Policy Priorities reports, some 24 million adults (11 percent) report that their household sometimes or often did not get enough to eat in the last seven days. In comparison, 8.5 million adults (3.4 percent) reported living in households that did not get enough to eat at some point during 2019.

At the state level, 11 percent of North Carolina adults live in households that do not have enough to eat. Meanwhile, 24 percent of North Carolina adults living with children report that the children are not getting enough to eat because of a difficulty affording enough food.

The $1.9 trillion pandemic response and economic relief package, the American Rescue Plan, expected to be signed into law by President Biden this week will extend and expand crucial nutrition assistance to provide support to these children and families. The anticipated package will extend a 15 percent increase in SNAP benefits through September 2021, which amounts to an average increase of $27 in benefits per person per month. The package will also allow states to continue the P-EBT program, which provides food assistance benefits during school closures to families with school age children who normally eat meals at school. The package also seeks to improve service delivery and increases the amount of fruit and vegetables available to participants of the WIC nutrition program for low-income women, infants, and children.

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

Earned Income Tax Credit, Child Tax Credit can help N.C. families during COVID-19

The COVID-19 pandemic has shed harsh light on the economic inequality, low wages and decades of inadequate investment in our safety net infrastructure, which are harming North Carolina families and challenging an equitable and speedy recovery from this health and economic crisis. 

Today, on EITC Awareness Day, we highlight the importance of the Earned Income Tax Credit (EITC) to addressing the immediate challenges and systemic issues facing workers who earn low wages. The evidence is clear that tax credits for working families can do more at the federal and state level to help with family economic stability, health and well-being. 

A new report from the Annie E. Casey Foundation recommends Congress expand the popular and effective federal Earned Income Tax and Child Tax Credits to provide increased financial stability to the many families struggling to afford the basics during the protracted recovery from this public health and economic crisis.  

About 1 in 7 North Carolinians entered the COVID-19 pandemic already experiencing poverty. In 2019, 13.6% of North Carolinians lived in poverty — an income of $25,750 or less for a family of four. This means the state entered the pandemic with more than 1.4 million residents already in poverty. The pandemic has only made it more difficult for North Carolina families to afford enough food, a safe and stable home, and health care when they need it. Some 19% of North Carolina adults with children in the household reported sometimes or often not having enough to eat during the pandemic, while 18% reported having slight or no confidence in paying their rent or mortgage on time.  

Poverty rates by age reveal persistently high levels of childhood poverty. In 2019,
1 in 5 North Carolinian
 children lived in poverty. The poverty rate for children under 5 years old was the highest for any age group — at 22%. After peaking at 26% in 2012, child poverty has remained elevated in comparison to the total poverty rate, as both declined slowly.  

Combined, the EITC and CTC help lift more than 5 million children out of poverty annually in the U.S. and provide more than 6 million with additional crucial resources that make it easier for recipient families to afford necessities like housing, food, medical care, as well as safe, quality child care. However, the expansion of these programs is necessary because, due to the policies’ design,
27 million children live in families with incomes so low they do not receive the full benefit of the credit.
 

Kids whose families claim the EITC and CTC can expect to do better in school, have an increased chance of attending college, and earn more as adultsIn their report Kids, Families, and COVID-19,” the Annie E. Casey Foundation recognizes the EITC and CTC as existing tools whose expansion is a crucial element of an equitable policy response that prioritizes children and families and helps ensure children’s well-being during and after the pandemic recovery.   

Some 20% of eligible filers in North Carolina are missing out on the positive benefits of the EITC and the cash assistance the credit provides to help a family navigate the COVID-19 crisis. Unfortunately, 20% of eligible filers in North Carolina aren’t benefiting from the EITC credit because they do not claim it. In order to maximize the credit’s positive health, educatio, and economic impacts in our state, it is crucial to raise awareness among the more than 200,000 North Carolinians who are eligible but do not claim the credit, and connect them with quality, not-for-profit tax preparation like the IRS VITA program 

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