Credit due

Good news for North Carolina's low-wage workers: A push is on for a state version of the successful earned income tax credit

America's economic engine may be humming along for the rich and the big-business sector, but indications are that the middle class isn't doing nearly as well when it comes to wages and spending power. If the middle class is just making do, low-wage workers are struggling. So a new push by North Carolina elected officials backed by progressive nonprofits to create a state earned income tax credit comes at a good time.

Legislators also will consider trimming the state sales tax once they begin the 2007 session next month. A combination of the two tax breaks, or both, would serve those who need help the most.

State Rep. William Wainwright of Craven County says that he and Sen. David Hoyle of Gaston County, both Democrats, will re-introduce legislation to create a state earned income tax credit set at 5 percent of the federal credit. If the bill passed, North Carolina would join 18 other states and the District of Columbia in providing the working poor with this incentive, which benefits people whose wages keep them on the bottom rungs of the economic ladder.

That was the aim of the federal tax credit when it was first approved in 1975. Its advocates say that since then, the credit has become one of the nation's most effective anti-poverty programs.

Increasing the minimum wage of course also helps those who labor for little, and the General Assembly this year wisely raised the state minimum by $1, to $6.15 an hour. That benefits both working parents in low-wage occupations and teenagers from affluent families who take a summer job.

The earned income credit, by contrast, directly benefits the working poor. It encourages low-income people to enter and stay in the job market by offering a tax credit equal to a percentage of what they earn. If the credit exceeds what a worker owes in income taxes in a given year, the difference is returned as a tax refund.

Such assistance has been especially helpful this year because Congress has imposed stricter welfare-to-work requirements. People who receive public assistance should work if they can, but many start out making wages that simply can't support a family. The credit can be a needed safety net for families on the financial edge.

If the credit is susceptible to abuse, so, for example, are government grants that benefit business owners. Both simply have to be monitored. Among the duties of the Internal Revenue Service is to prosecute fraud, and it is doing so in the federal earned income tax credit program. The IRS' experience should help North Carolina lawmakers design this state's credit so that it is less vulnerable to cheating.

A state program could cost as much as $72 million a year, which is steep in view of the desire of Governor Easley and some legislators to trim another quarter percent from the 4.25 percent state sales tax. That cut was promised and it's overdue. But going ahead with the cut would cost state coffers about $200 million annually, and it wouldn't mean nearly the benefit to low-wage households as would a modest earned income tax credit. The credit should receive a close look as North Carolina's first priority.