Point of View

Fairness requires the return of the NC Earned Income Tax Credit

February 25, 2014 

Most North Carolinians believe we shouldn’t have a tax system that asks more from middle- and low-income taxpayers than it does from those at the top. It doesn’t make economic, political or moral sense. Indeed, a bipartisan consensus has emerged that fairness should be a key metric in evaluating recent tax policy decisions.

Unfortunately, last year’s tax changes made the disparities in our tax code even worse. Now is the time for swift and immediate action to reinstate a policy that can at least partially fix North Carolina’s upside-down tax system: the state Earned Income Tax Credit. We should also stop further tax-rate reductions that benefit the top while eroding valuable resources for the state.

The reality is North Carolina’s tax code has been woefully upside down for decades, continuing to exact a real cost on the state’s ability to raise adequate and fair revenue to pay for public services people depend on each day, including our schools, infrastructure and public safety. North Carolina’s lowest and middle income taxpayers pay a greater share of their annual incomes in state and local taxes than do higher income taxpayers. This doesn’t make a whole lot of sense – a dollar for someone with just $11,000 in income means a whole lot more to a total family budget than a dollar for a millionaire.

The sales tax hits low- and middle-income taxpayers hard. After policymakers raised this tax temporarily in 2009 to address budget shortfalls, the increased value of the state EITC went offset the effect somewhat. The state EITC provided a critical support to working families who were paying more in sales tax but not earning sufficient income to make ends meet.

Unfortunately, more than 900,000 North Carolinians will see their taxes go up next year because the legislature let the state EITC expire, ending a tax credit that benefited families, communities and the broader economy.

Together with the federal credit, our EITC helped families keep working despite low wages by letting them keep more of what they earn. The income boost from the federal and state credits not only helps these families make ends meet but also can help children do better and go farther in school. The credits also can help them work and earn more as adults. That’s good for all of North Carolina because it helps families get on their feet, reduces their need for public assistance and helps stop the vicious cycle of poverty that holds back so many children.

The end of the EITC was bad, but things could get even worse for working families. Policymakers continue to pursue sales-tax expansion to pay for the costly 2013 income tax cuts that primarily benefit the wealthy and profitable corporations. Without an EITC to offset paying sales taxes on more products and services, people who work low-wage jobs will pay even more of their incomes in taxes.

Compromise is an important sign that our leaders are willing to work to achieve the best outcomes for the majority of North Carolinians. As the focus continues on how low- and middle-income taxpayers will fare, policymakers should help hundreds of thousands North Carolina workers and their children by reinstating the state EITC. Doing so would cost just 10 percent of the $1.4 billion in income tax cuts passed in 2013. Lawmakers should not consider more tax reductions to ensure that the state can meet its commitment to provide each child a sound, quality basic education, protect the health and safety of all its residents and build communities that are vibrant and attractive economic centers.

If fairness in our tax code is a shared value we all hold, North Carolina’s policymakers should move to reinstate the Earned Income Tax Credit and stop additional income tax cuts for the top.

Alexandra Sirota is the director of the N.C. Budget & Tax Center, a project of the N.C. Justice Center.

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