Legislation would repeal N.C. tax credit for low- and moderate-income taxpayers

Lawmakers appear unwilling to extend a tax break for low-income workers, in what critics are calling the third strike against the state’s least fortunate in the first 10 days of the legislative session.

More than 900,000 low- and moderate-income taxpayers received the modest tax break last year under the state’s earned income tax credit or EITC. The state credit was established in 2007, but it is scheduled to expire at the end of 2013 unless legislators act to extend it.

The Republican-drafted bill allows the tax credit to sunset after this year. That means 2013 tax returns – which will be filed next spring – are the last ones eligible for the state earned income credit. The bill also cuts the amount of the tax credit for 2013 to 4.5 percent from 5 percent.

The bill does not affect the credit on 2012 tax returns being filed now.

The earned income tax credit cost the state $105 million last year. Democrats are trying to prolong the credit until 2019, but Republicans are poised to reject it when debate continues next week.

Taken together with efforts earlier in the session to curtail unemployment benefits and prevent 500,000 low-income residents from receiving government-backed health care, Democrats said legislative leaders are showing little heart when it comes to poor people.

“The failure to extend the state EITC just shows a complete lack of compassion by the majority party,” said state Rep. Paul Luebke, a Durham Democrat behind the extension effort.

Republican leaders dispute the notion and contend the three measures are aimed at securing the state’s financial footing by reducing the state’s unemployment debt, limiting financial burdens of the federal health care law and maintaining tax revenues.

“Our tax dollars are very sacred this year with a lot of things we need to do, and that is $105 million that we are literally writing checks for,” said Rep. Julia Howard, a Republican chairman of the House Finance Committee.

Howard also cited an Internal Revenue Service report showing about one-quarter of all earned income tax claims at the national level are fraudulent. “It sounds good, it looks good, but there is a lot of fraud in it,” she said.

Democrats put the state earned income tax credit in place in 2007 and added a five-year automatic sunset, Luebke said. Republicans extended it for one year.

North Carolina offers a tax break equal to 5 percent of the federal earned income tax credit. The maximum federal credit is $5,891 for a married couple with three children, making the largest state rebate equal to $294. Most eligible taxpayers receive far less.

Roby Sawyers, a tax expert at N.C. State University, said it is a popular tax break because it rewards working taxpayers, particularly lower wage earners, even if the state credit is not large.

The debate on the tax measure – House Bill 82 – came just before the House gave final approval 75 to 42 to separate legislation that blocks Medicaid coverage for roughly 500,000 people, many of whom are uninsured, and relinquishes control of the online health insurance exchange to the federal government. GOP leaders have said the Medicaid expansion is too costly.

“We’ve had what seems to be a concerted attack on the uninsured, the unemployed and now the poor,” said Rep. Larry Hall, the House Democratic leader, encapsulating the Medicaid and EITC debate.

The House will continue its debate on the tax measure Tuesday. It also reduces tax breaks for adoptions and businesses that hire certain employees, such as unemployed veterans.

Rep. Mike Hager, a GOP leader, said most legislation so far is aimed at reducing tax burdens on businesses in the hopes they will create jobs. “We are being compassionate,” said Hager of Rutherfordton.

“We have a mindset of growing jobs. We have a mindset of pulling as much ... government burden off these small businesses.”