NC Budget and Tax Center

Legislatures across the country see EITC expansion legislation

The New Mexico legislative session came to a close last week with a tax policy bill that included an expansion of the New Mexico state version of the Earned Income Tax Credit from 10 percent to 17 percent of the federal credit.

The Earned Income Tax Credit (EITC) is considered an especially effective policy mechanism for driving down poverty. As a result, a number of state legislatures have seen bills during the 2018 and 2019 legislative sessions that have sought to increase the percentage value of their complementary state credit.

The Michigan legislature is considering two such bills. HB 4298 seeks to increase the Michigan state EITC from 6 percent to 20 percent of the federal credit. HB4324 would seeks to increase that percentage to 30 percent of the federal credit.

A bill recently introduced in the Delaware legislature is a hybrid of refundable and nonrefundable EITC. The bill is designed to give recipients a choice between a fully refundable credit at 4.5 percent of the federal credit, or a nonrefundable 20 percent credit.

Ohio Governor Mike DeWine signed legislation to increase the state EITC from 10 percent to 30 percent of the federal credit.

2018 was marked with EITC expansion in six states. California, and Maryland sought to expand their state EITCs through increased accessibility across populations. Maryland now has no minimum age requirement for EITC filers. Single California filers age 18-24 without dependent children, along with single filers older than 65 without dependent children are now eligible to claim the California credit.

Massachusetts expanded its state credit from 23 percent to 30 percent of the federal credit, while Vermont and New Jersey saw similar increases from 32 percent to 36 percent and 35 percent to 40 percent respectively. Meanwhile, Louisiana expanded its EITC from 3.5 percent 5 percent of the federal credit.

NC Budget and Tax Center

Proposed tax cut bill in Congress would help 3.7 million in N.C.

A majority of the families that benefit from the Earned Income Tax Credit (EITC) are single head of household filers— a filing designation commonly used by single mothers. The same single mothers who are struggling to provide the basics of a healthy and happy life for their children in an economic climate defined by stagnating wages and higher costs for childcare, medicine, and housing. North Carolina’s low- and middle-income working families are struggling to stay afloat as costs rise faster than their pay.

In North Carolina, these same families are responsible for an ever increasing tax burden while our state’s wealthiest individuals and corporations are not being asked to pay their share.

In stark contrast to the Tax Cuts and Jobs Act (TCJA) of 2017 that was heavily tilted in favor of corporations and the wealthy, several Senate co-sponsors just introduced the Working Families Tax Relief Act.

If successful, the Working Families Tax Relief Act will strengthen the highly effective EITC and Child Tax Credit (CTC).    Read more

Commentary, Legislature, NC Budget and Tax Center

New reports: Together, state EITC and adequate minimum wage work to strengthen families, and boost the economy

North Carolina’s working families face stagnant wages and rising costs for basic necessities like housing, child care, and transportation.

According to a new report from the Center on Budget & Policy Priorities, adopting a state EITC, to complement the federal credit and strengthening the state’s minimum wage will boost incomes for families that work low-wage jobs. In tandem, these policy tools have an especially positive impact on the financial well-being of families that struggle to make ends meet.

A few findings from the report:

  • Wages remain largely stagnant. Although productivity has increased markedly, low-wage workers have seen negligent gains in income over the past four decades. While the wealthiest have enjoyed the benefits of economic growth, low and middle-income workers have not.
  • Raising minimum wage and adopting state EITC work to address this income inequality, and reduce poverty among children. EITC is one of the most effective tools to lift working families and children out of poverty, keeping 5.7 million out of poverty. The federal minimum wage, used as a guide for states, has not kept pace with the rising cost of living. Increasing the minimum wage to $15 over the next five years would positively impact the ability of 28.1 million workers to cover the costs of day-to-day life.
  • Twenty-nine states and the District of Columbia have already enacted the EITC, and are experiencing its benefits, while 21 states are on pace to raise minimum wage in 2019.
  • Together, these policies reach overlapping but different populations, and allow the public and private sectors to share the cost.

A complimentary report from the Center on Budget & Policy Priorities highlights the positive economic impact of adopting a state EITC, focusing on the workforce, tax, and anti-poverty implications of the tax credit.

The report finds that adopting a state EITC improves the future economic prospects of children in claiming families, helps those families cover costs associated with continued work, like childcare and transportation, and encourages lowest-earning families to work more hours. A state EITC would also help offset the increase tax burden low and middle-income families bear in relation to wealthier tax payers.

Proposals have been introduced in the North Carolina House and Senate to establish a state EITC.  Given this emerging research and the challenges facing working families in our state, let’s hope both get a hearing soon.

Heba Atwa is a policy advocate for the N.C. Justice Center’s Budget & Tax Center.

NC Budget and Tax Center

An Earned Income Tax Credit for North Carolina is just common sense

A North Carolina Earned Income Tax Credit is a common-sense way to help working families keep more of what they earn to cover basic necessities, and an evidenced-based policy to improve the health and educational outcomes of our state’s children.

Forty of North Carolina’s 100 counties have a poverty rate above 20 percent.  And according to the Working Poor Families Project, 12.1 percent of working families are living on earnings that keep them at or below poverty — meaning each year they earn less than $24,600 for a family of four.  More than 36 percent of working families live on low incomes that fall short of what it takes to make ends meet on a conservative budget in North Carolina counties.

A North Carolina Earned Income Tax Credit would provide much needed income to households across the state — income that they have earned through work.

It is a policy proven to strengthen the connection to work, especially for single mothers, and it generates significant benefits for children in households that receive the credit in the form of better school outcomes and higher likelihood of attending college.

Nationally, the federal Earned Income Tax Credit lifted 5.7 million people, including 3 million children, out of poverty in 2017.

A state EITC at 5 percent of the existing federal credit would be easy to administer and would provide a value of nearly $100 million to North Carolina taxpayers in counties across the state.

A state working families tax credit would mean people such as teachers, military services members, restaurant workers, and early childhood workers who are earning middle to low incomes would get to keep more of what they earn to pay for unexpected bills and the rising costs of basics like childcare, housing, and transportation to and from work.  Such a credit would also mean those dollars would be pumped back into the local economies of North Carolina counties, as low- and middle-income workers spend more of what they earn and spend it locally.

Robeson County, where 57.5 percent of residents are low-income, would see a return of $2,324,000 annually if the credit were set at 5 percent of the federal credit.  Ashe County, where 41.5. percent of residents are low-income, could expect a return of more than $233,000 annually if the credit were set at 5 percent of the federal credit. Bertie County, where 52.5 percent of residents are low-income, would see an injection of more than $317,000. These dollars are vital to improving the health and educational outcomes of families in these communities, as well as creating and expanding jobs in local economies and statewide.

It is time to invest in our communities and families with a North Carolina Working Families Tax Credit – it just makes good sense.

NC Budget and Tax Center

Still have questions about the income tax amendment on the ballot?

Today is Election Day, and many in North Carolina are still unaware or confused about the six proposed amendments to the NC constitution that are currently on the ballot. Below are some of the questions the Budget & Tax Center has most often encountered during this election season.

What is the proposed income tax cap amendment?

During the most recent legislative session, North Carolina lawmakers approved a bill to change the North Carolina Constitution to place a cap on the maximum allowable rate of personal and corporate income tax. Because this bill requires a change to the NC Constitution, the question now goes to voters. If voters approve this amendment on Election Day 2018, the personal and corporate income tax rate in North Carolina will be permanently capped at 7% as opposed to the current 10% income tax cap.

Will this income tax cap put money back into my pocket after the November vote?

The proposed income tax cap amendment is not a tax cut, and will not ensure you pay less in taxes overall. The amendment proposes to permanently cap the income tax rate at a maximum allowable rate of 7%. Currently, North Carolinians pay a 5.499% rate of individual income tax, and a 3% rate of corporate income tax. Therefore, folks in North Carolina cannot expect a tax cut as a result of this tax cap amendment. In fact, if income tax is capped at 7%, sales and property taxes will likely be increased in the future.

Who stands to benefit the most from this proposed tax cap?

This amendment makes permanent some of the recent tax changes that benefit the richest North Carolinians, increasing concern that middle and low-income individuals will foot the bill. Previously, and for some time, North Carolina had a graduated tax structure that required the richest of us to pay a higher rate of personal income tax. From 2001-2006 the rates paid by the richest North Carolinians were above 7%.

Income tax is the largest source of tax revenue in our state, and provides needed dollars for crucial infrastructure and services like education, public health, public safety, and parks and libraries. In order to respond to future economic crises and ensure continued funding for these services, future lawmakers will likely be forced to raise sales and local property taxes to make up for the loss in income tax revenue. Because sales and property taxes are not applied depending on a person’s income, low and middle income North Carolinians pay a larger share of their incomes toward those taxes.

Is there currently an income tax cap in North Carolina, or can my income taxes be raised without limit?

The maximum income tax rate is already capped at 10%. Your income taxes cannot currently be raised beyond that rate.

Have other states capped income taxes? What happened?

In 2014, Georgia changed the state constitution and placed a cap on its top income tax rate. The income tax cap has cut off a major source of funding to address classroom and student needs across the state of Georgia, limiting the ability of current and future lawmakers to utilize its income tax to ensure that its public schools have adequate resources for the more than 1.7 million students in its public schools.

For more information about the potential impact of the tax cap, please read the Budget & Tax Center’s recent report. For general information related to November’s election, please visit www.ncjustice.org/election2018.

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