Unhappy New Year: North Carolina Eliminates Its EITC

January 13, 2014 at 2:15 pm

Low-wage working families have less support in North Carolina as of January 1.  That’s when the state officially eliminated its earned income tax credit (EITC), giving North Carolina the dubious distinction of being the only state ever to do so.

Half the states have created EITCs (see map) to help working families with incomes up to roughly $50,000 make ends meet.  As our recently updated backgrounder explains, these credits build on the benefits of the federal EITC and are easy to administer, with nearly every dollar spent on state credits going directly to the working families they were created to help.  They not only help families working for low wages meet basic needs but also reduce poverty, especially among children.  And the benefits can be long-lasting:  low-income children in families that get additional income through programs like the EITC do better and go farther in school and, as a result, work more and earn more as adults.

North Carolina’s decision to end its EITC will mean a tax hike for 900,000 working households, most of them with children to support.  The state’s policymakers had already cut the credit for 2013, its last year on the books, from 5 percent of the federal credit to 4.5 percent, shrinking an already modest benefit.

North Carolina has made other tax and spending decisions lately that harm Tarheel families.  The state raised sales taxes to partly fund deep income tax cuts for the wealthy, and it cut funding for schools and other state services.  And North Carolina slashed unemployment benefits more deeply than any other state.

These actions not only harm individual families, they harm local businesses and slow the economy by taking dollars away from the consumers who are most likely to spend them on local goods and services.

Print Friendly

More About Michael Leachman

Michael Leachman

Michael Leachman joined the Center in July 2009. He is the Director of State Fiscal Research with the State Fiscal Project.

Full bio | Blog Archive | Research archive at CBPP.org

4 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. 1

    Let’s be honest:
    “Both the EITC and the CTC were initially proposed, supported, and expanded by Republican policymakers with broad bipartisan support. Claiming the EITC and CTC can be complicated and involves filing additional tax forms, which leads to errors of both over- and underpayment. The EITC appears to increase the labor force participation of single mothers, yet the high marginal tax rates associated with its phase-out range do not appear to have a significant work disincentive effect. The EITC is, by far, the most progressive tax expenditure in the income tax code. The EITC reduces poverty significantly, with children constituting half of the individuals it lifts out of poverty. The EITC and CTC are effective in increasing after-tax income of targeted groups, reducing poverty, and reducing income inequality.”
    These are all empirical findings based on research and not someone’s personal opinion who clearly doesn’t understand the program.
    Additional facts of note:
    “The Joint Committee on Taxation (2013) estimates that the earned income tax credit reduced federal tax revenue by $59.0 billion in fiscal 2012 and will reduce tax revenue by $325.9 billion between fiscal 2013 and 2017 (see Table 2). The forgone tax revenue from the child tax credit is estimated to have been $56.8 billion in fiscal 2012. In comparison, fiscal 2012 outlays for the main federal family assistance program—Temporary Assistance for Needy Families—was $16.1 billion, while outlays for food stamps.

    • Jeff Funkhouser #
      2

      Sorry, my comment was curtailed before ending. THe last quote was,
      “The Joint Committee on Taxation (2013) estimates that the earned income tax credit reduced federal tax revenue by $59.0 billion in fiscal 2012 and will reduce tax revenue by $325.9 billion between fiscal 2013 and 2017. The forgone tax revenue from the child tax credit is estimated to have been $56.8 billion in fiscal 2012. In comparison, fiscal 2012 outlays for the main federal family assistance program—Temporary Assistance for Needy Families—was $16.1 billion, while outlays for food stamps (now called the Supplemental Nutrition Assistance Program) were $80.0 billion. In contrast, forgone tax revenue from two tax provisions primarily benefiting higher-income taxpayers—the exclusion of pension contributions and earnings, and the reduced tax rates on capital gains and dividends—amounted to over $200 billion in fiscal 2012.”
      The source for these facts is http://bit.ly/1ayQwyS

  2. Ned Harrison #
    3

    Be Honest. We’re not taking money from people who earned it; we’re just not paying them for being unsuccessful. EITC was a massive, expensive vote-buying scheme; and it’s failed at last. For every dollar it distributed, it took many more in to pay for. I can only hope the government of North Carolina takes this opportunity to thin the ranks of it’s employees, now that they are no longer required to administer this boondoggle.

    As for a flat tax, isn’t that the desired outcome? Everyone paying their “fair share”? Oh, wait; that’s not the actual Progressive goal, is it? No, Progressive think “fair” is to rob those with more, and then pretend they’re Robin Hood, giving to the “needy”. Well, where do you think the “rich” put their money; in a mattress? They invest, in businesses, in jobs, in goods and services that PAY people in the lower income brackets a wage. For every dollar that the government DOESN’T take in in taxes, four more find their way into the economy.

    North Caroline has done the right thing; let’s hope other states follow their example, and give the people who DO earn money a chance to spend it, rather than lose it to government waste and fraud.

    • Robert McKnight #
      4

      If that were actually true, with all of the massive tax cuts given to these rich people since Saint Reagan would have us swimming in jobs. The tax rate for the top 10% is less that a third of what it was when Reagan took office, and for most, it is 15% for cap gain and carried interest only.You obviously only have a Neil Cavoto understanding of economics. Try listening to people who actually have some idea of how things actually work.



Your Comment

Comment Policy:

Thank you for joining the conversation about important policy issues. Comments are limited to 1,500 characters and are subject to approval and moderation. We reserve the right to remove comments that:

  • are injurious, defamatory, profane, off-topic or inappropriate;
  • contain personal attacks or racist, sexist, homophobic, or other slurs;
  • solicit and/or advertise for personal blogs and websites or to sell products or services;
  • may infringe the copyright or intellectual property rights of others or other applicable laws or regulations; or
  • are otherwise inconsistent with the goals of this blog.

Posted comments do not necessarily represent the views of the CBPP and do not constitute official endorsement by CBPP. Please note that comments will be approved during the Center's business hours. If you have questions, please contact communications@cbpp.org.




five + = 12

 characters available