This is third in a series of Women AdvaNCe articles on North Carolina’s new tax code. Despite lawmakers’ claims that new laws make taxes more equitable, the end of a state earned income tax credit means 900,000 North Carolina families will have less money next year. The credit, which rewards low-to-middle income families who work, has been widely praised as one of the best tools to help keep children out of poverty. During the 2013 session, the state General Assembly voted to forego the EITC in favor of across-the-board cuts that reward the state’s richest earners.
North Carolina lawmakers added the EITC to the state’s tax code in 2007. It was designed to supplement a federal tax credit that gives lower income workers a tax refund—even beyond taxes paid. For families with children making less than $50,000 a year, the credit significantly decreased personal state tax burden and even gave families refunds of up to $300.
Proponents of the new tax plan have called it pro-growth, and have said that a flat tax rate with fewer deductions and credits will bring more business to the state. But research shows that 80% of taxpayers will see an increase on their tax bills, with rural, poor North Carolinians bearing the bulk of the burden. Experts say the EITC is essential to stimulate household economies in places where the bulk of jobs—retail and labor—do not pay a living wage.
About half of US states have an earned income tax credit, but North Carolina is the first state to end an existing program. Although the state will technically save the $105 million it isn’t paying in refunds, the consequences of this plan will cost every taxpayer in the long run. Families may leave the state in favor of places with more favorable tax codes, while others who are dealing with increased costs might need to rely more heavily on social programs such as food stamps.
The federal EITC is still available to taxpayers, and according to the NC Justice Center, it was responsible for keeping nearly 300,000 families above the poverty line in 2011. Families who qualify will still receive a North Carolina tax credit this year—for income earned in 2013—but unless the legislature changes the law during the next session, that will be the final credit for the state’s neediest working families.