The state legislature is holding a press conference on Thursday, March 3 regarding the state earned income tax credit (EITC). Due to budget constraints, a proposal has been made to eliminate the refundable portion of the state EITC to save an estimated $52 million in the budget. Advocates with multiple nonprofit groups have another message, stating that cutting the refundable portion would be detrimental to the working poor. The EITC is designed to be an offset for the higher portion of taxes that low income families pay towards sales and other taxes. It also rewards those who are working but are unable to afford the basic necessities in life. Please review the following statement prepared for Thursday’s press conference:
KEY TALKING POINTS:
Why Raising Taxes on Working Families to Balance the Budget Shows Misguided Priorities for North Carolina
Legislators’ recent plan to cut the EITC is a tax increase on North Carolina’s lowest earning working families that is bad for the state’s economy.
- 1 in 10 North Carolina households would experience a net tax increase with the loss of the refundable portion of the state EITC (Institute on Taxation and Economic Policy).
- More than 1 in 9 non-elderly households (12 percent) would experience a net tax increase (Institute on Taxation and Economic Policy).
Working families are being asked to pay for the tax breaks given away to profitable corporations.
This is bad for North Carolina’s economy. What they get from the EITC, working families spend on necessities, and they spend it locally. There’s no guarantee tax breaks for big companies stay in the state. It’s a bad deal for working families and for North Carolina.
Over 428,000 working families would see their purchasing power shrink and their ability to pay for food, clothing, housing, and transportation for themselves and their children compromised.
Families throughout North Carolina – in every zip code and every legislative district – would be hit by this tax increase.
- See attached Preliminary-2009-EITC-Data-by-County from the N.C. Department of Revenue
COUNTERING REFUNDABILITY ISSUE:
This isn’t a handout; low-income working families have to devote a higher share of what they make to sales taxes and property taxes than wealthy people do. The EITC evens the playing field and gives working families a chance to get ahead.
Ending refundability takes away the EITC’s ability to help working families cover the substantial share of their income they pay in sales and property taxes.
- North Carolina’s lowest income households, those in the bottom three-fifths pay at or near 9.5 percent of their annual income in state and local taxes. The wealthiest North Carolinians, whose incomes put them in the top 1 percent of all households pay under 7 percent of their income in state and local taxes (Institute on Taxation and Economic Policy).
Raising taxes on working families is the wrong way to solve North Carolina’s budget problems. North Carolina’s economy would be far better off if we maintain support for low-wage workers and their children and cancel costly tax breaks for profitable corporations.
Supporters of this tax increase say the state can’t afford the EITC. What the state can’t afford is to let struggling families go under. With the federal EITC the state EITC keeps hundreds of thousands of North Carolina working families and their children from slipping through the cracks, falling into poverty, and remaining unable to move up the economic ladder.
Business leaders support the EITC because it helps their employees stay in the workforce and make ends meet. Many businesses (such as utilities) also support it because it helps their customers pay their bills.
The EITC has a strong tradition of bipartisan support. Every U.S. President since Ronald Reagan has expanded the federal EITC. Reagan made expansion of the EITC a key part of the 1986 tax bill because he so strongly opposed income taxes on poor working families. Eliminating North Carolina’s EITC flies in the face of long held, strong bipartisan support for an effective tool for making work pay and reducing poverty.
Research shows that the EITC is very effective at encouraging parents to enter and stay in the workforce, providing a path to the middle class.