Point of View

Earned Income credit where credit is due

March 8, 2011 

— It's filing season - both for income tax returns and for the new Republican leadership at the General Assembly to file bills that reflect their legislative priorities. The Republican leaders won their seats, in part, by pledging not to raise taxes and to represent those North Carolinians who work hard to provide for their families in the face of one of the worst economic downturns most of us have ever lived through. Strange, then, that in one of their first moves in the current legislative session, the leadership proposes to increase taxes on low- and moderate-income working families by eliminating the refundable portion of the state's Earned Income Tax Credit (EITC).

If passed, this measure would reduce the value of the EITC by roughly half and raise the taxes of 1 in 10 North Carolina households. Strange, too, that they should target a tax credit that has had such longstanding bipartisan support because it encourages work over public assistance.

The federal tax credit - of which the state EITC is an exact duplicate - was enacted under Gerald Ford. The Earned Income Tax Credit was a favorite of Ronald Reagan, who called it "the best anti-poverty bill, the best pro-family measure and the best job creation measure to come out of the Congress of the United States." Years of research have borne out the reasons for Reagan's enthusiasm.

The EITC brings people into the labor market, which is a boon for employers, for workers and for the local businesses where EITC dollars are spent. In an era of stagnating wages and benefits, the EITC is an essential bridge that allows families, particularly those with children, to escape poverty while they work their way up the job ladder.

In the EITC Carolinas program at MDC, we support free tax preparation programs across the state that work with many EITC recipients. They include a small farmer and his wife in Rutherford County that care for their two orphan grandchildren and who struggle to manage the expenses of raising a second generation while trying to prepare for retirement. They include a manager in Forsyth County, laid off from his high-tech job, whose wife's medical bills for cancer treatment put them in danger of home foreclosure - which they escaped only because of their eligibility for the EITC. Another recipient is a mother in Wake County with two small children who is able to afford the community college tuition and child care she needs to find better employment thanks to this tax credit.

The EITC was designed to offset the total package of taxes paid by low-wage workers, including the comparatively high payroll taxes they pay. In North Carolina, a low-income household pays 9.5 percent of its income in total state and local taxes while those in the top 1 percent of the income distribution pay just 7 percent.

A sponsor of one of the bills recently said that he thought the EITC was a good program, but the state could no longer afford the cost. Perhaps rather than removing this effective policy, legislative leaders should rethink the reduction in the corporate tax rate they've proposed, or close the corporate tax loopholes they have failed to address. They might also consider reinstating the top tax bracket that the General Assembly eliminated the same year that it passed the EITC - and which at the time was estimated to cost the state twice the value of the EITC.

Raising taxes for the state's working poor and jeopardizing one of our best work incentives is not a recipe for economic prosperity. To help working families prosper, now and in the future, we need the Earned Income Tax Credit.

Lucy Gorham is senior program director at MDC, a Chapel Hill-based nonprofit, where she leads the EITC Carolinas Initiative.

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