Sheldon K. Johnson, Policy Intern at Think NC First

Tax season has descended upon us again. North Carolina used to shine as a leader in providing some much-needed relief to working families during this time of year. North Carolina was one of four states that offered a combination of state tax credits for working families that have gained a reputation for helping lift families out of poverty.

In a 2011 report, the NC Budget and Tax Center celebrated our state tax system for including three valuable tax credits for working families. The Child Tax Credit (CTC), the Child and Dependent Care Credit (CDCC), and the Earned Income Tax Credit (EITC) were all heralded for helping parents to offset the costs of raising a family while also encouraging them to work. Approximately 2.1 million North Carolina families benefited from these three tax credits in 2008 alone.[1]

These three tax credits are even more important in a state like North Carolina, which has a regressive tax system. This means that low-income families pay a higher percentage of their income than wealthy families do. The combination of the CTC, CDCC, and EITC helped to counteract this unfair fact of the NC tax system.

Unfortunately, North Carolina’s working families will be unable to receive the same relief this tax season that has been available to them in previous years. The General Assembly eliminated the EITC and CDCC as part of the new tax plan they adopted in 2013. According to the Institute on Taxation and Economic Policy (ITEP), low-income North Carolinians will pay nearly twice the tax rate of the richest residents of the state.

The elimination of these effective tax credits comes at a terrible time for working families. Childcare costs are on the rise in North Carolina. In fact, we are one of 14 states where the average cost of full-time childcare exceeds that of the average price of in-state college tuition and fees.[2] We should be expanding our state EITC and CDCC, not eliminating them.

North Carolina lawmakers are on the wrong side of this debate. While our state is in the midst of becoming more regressive for working families, President Obama used his State of the Union Address to argue for tripling the maximum child care tax credit.

“In today’s economy, when having both parents in the workforce is an economic necessity for many families, we need affordable, high-quality childcare more than ever. It’s not a nice-to-have -- it’s a must-have. So it’s time we stop treating childcare as a side issue, or as a women’s issue, and treat it like the national economic priority that it is for all of us.” President Obama

Both the Earned Income Tax Credit and the Child and Dependent Care Credit have a proven track record of both enabling and encouraging North Carolinians to work.[3] North Carolina lawmakers need to reverse course and invest in our state’s economic future by better supporting working families.

 



[1] Alexandra Forter Sirota. (October 2010). “State Earned Income Tax Credit in North Carolina: Implemented in the Nick of Time.” Available at http://www.ncjustice.org/sites/default/files/BTC%20Brief%20-%20State%20EITC%20-%20In%20NIck%20of%20Time_0.pdf

Edwin McLenaghan. (May 2011). “Making Work Pay: Tax Credits for Working Families Enable and Encourage Work by Alleviating Employment-Related and Family Expenses.” Available at http://www.ncjustice.org/sites/default/files/BTC%20Brief%20-%20Making%20Work%20Pay-WEB%20%282%29.pdf

[2] Child Care Aware of America. (2014). “Child Care in America: 2014 State Fact Sheets.” Available at http://usa.childcareaware.org/sites/default/files/19000000_state_fact_sheets_2014_v04.pdf

[3]Tazra Mitchell. (March 2014). “First in Flight from the EITC: Low-Income Working Families Bid Farewell to North Carolina’s Earned Income Tax Credit.” Available at http://www.ncjustice.org/sites/default/files/BTC%20Brief%20-%20First%20in%20Flight%20from%20the%20EITC.pdf