RALEIGH - This is not our parents' economy. "Old economy" jobs such as those in traditional manufacturing continue to decline precipitously. And while some "new economy" jobs pay decent wages (computer technicians and nurses, for example), most expanding occupations available to workers without advanced education are primarily low-wage, service sector jobs such as a retail salesperson. Today, roughly one out of every five workers in North Carolina earns low wages (defined as less than $9.12 per hour for a family of four).

Paradoxically, poorly paid workers in North Carolina face the highest effective tax rates. In 2003, after adjusting for the federal tax offset, the poorest 20 percent of taxpayers paid 10.9 percent of their incomes to state and local taxes, while the richest 1 percent of taxpayers paid only 6.3 percent, according to the Institute on Taxation and Economic Policy.

To help low-income workers survive in an intensely competitive global economy and to make the state tax system more fair to these workers, North Carolina should join the other states that have adopted state Earned Income Tax Credits (EITCs).

The federal government enacted an EITC in 1975. Since then, 19 states and the District of Columbia have instituted state versions as a percentage of the federal credit. (The EITC is a special tax benefit for working people who earn low or moderate incomes. In tax year 2003, 733,465 North Carolinians claimed the federal credit.)

Individuals must have earned income in order to claim an EITC, and the amount of the credit is much greater for individuals with children. The federal credit and the majority of the state credits are "refundable," i.e., if the amount of the credit is greater than the individual's tax liability, then the taxpayer is paid the balance. The credit is available to individuals who worked full- or part-time during the year. The credit has limits based on income and the number of dependents.

Under the federal credit, a married couple with two or more children with an annual family income of $25,000 would receive a credit of $2,156. Under a hypothetical 10 percent refundable state credit, this same family would receive an additional $215. A single parent with one child who earns $20,000 per year would be eligible for a federal credit of $1,648 and an additional $165 under the same hypothetical state credit. Several states offer more generous credits. Maryland's earned income credit, for example, is set at 50 percent of the federal credit, with the first 20 percent being refundable.

In North Carolina, a 10 percent refundable EITC would cost approximately $133 million annually in lost tax revenue to the state. That amount represents less than one-tenth of 1 percent of the current state budget.

Enacting a state EITC is not a new idea here. Legislators have introduced EITC proposals before. In 2001, Gov. Mike Easley included a state EITC in his recommended budget. And in May of this year, Lt. Gov. Beverly Perdue proposed a state EITC as part of her "Working Families Agenda."

North Carolina is fortunate to have a strong system of public structures that support the economy and its workers. This includes both physical infrastructure such as highways and bridges and strong public institutions such as the community college system. In the long run, the state can build an economy that works for everyone by maintaining and enhancing these public investments. In the meantime, enacting a state EITC is a crucial step in easing the transition to the new economy for low-wage workers.

(Elaine Mejia is the director of the Budget and Tax Center, a project of the N.C. Justice Center.)