Recognizing the Contributions of Working Families to NC’s Economy and Communities
Working families across North Carolina contribute to our state’s economy every day through their labor in essential roles, from grocery store workers to home health aides to early childhood educators. At the same time, North Carolina’s upside-down tax code asks these families to play an outsized role in funding the public services we all want to see — like excellent childcare for working parents and affordable job training and post-secondary education so young people can fully participate in leading our state into the future.
Every policymaker — and every candidate for state office — who cares about recognizing the contributions of working families, boosting their wellbeing, and making our state tax code fairer should embrace a state Earned Income Tax Credit (EITC) as a proven economic policy that helps communities thrive.
NC’s tax code asks the most of those with the least
State and local taxes are how communities in North Carolina come together to fund the systems and institutions that we all care about. No matter where we come from or what we look like, we all want access to great schools and teachers, safe roads and effective public transit, and beautiful parks and libraries to enjoy with our loved ones. Right now, though, our tax policies ask low- and middle- income taxpayers to contribute more as a share of their income in total state and local taxes than millionaires. NC families with incomes below $22,000 pay almost 11 percent of their income in state and local taxes, while the richest 1 percent of households pay just 6 percent.
Policies coming out of the General Assembly over the last decade have made the tax load carried by working families with the lowest incomes heavier. These policy changes include the elimination of a graduated personal income tax, continuous decreases in the now flat personal income tax rate, and the scheduled elimination of the corporate income tax.
One fix is readily available in North Carolina — a refundable tax credit that builds on the success of the federal Earned Income Tax Credit.
A state tax credit for working families would boost incomes and wellbeing
The federal EITC has been boosting the incomes and wellbeing of working families since 1975. In recognition of its success, nearly two-thirds of states plus Washington, D.C. and Puerto Rico have adopted their own EITC to supplement the federal credit. North Carolina is now one of only 19 states without an EITC.
A refundable state EITC set at 20 percent of the federal credit would reach an estimated 23 percent of North Carolina families, providing each eligible household with an average financial boost of over $400 to afford the basics and get ahead. The benefits of this boost in income to households is clear: more dollars translate into reduced child poverty, better health outcomes, higher educational achievement, and greater lifetime earnings. Families in every district across the state — including one million North Carolinian children — would benefit from a state EITC. Because barriers in access to high-wage work have caused Black and Latinx families to be overrepresented at the lower end of the state’s income distribution, a state EITC would also improve racial equity while correcting our upside-down tax code.
Complementary tax policies would help realize the full benefits of a state EITC
The adoption of a state Earned Income Tax Credit would be a meaningful move towards recognizing the contributions of regular North Carolinians to our economy. Yet it can’t be the only step lawmakers take to make sure that our tax policies support working people.
By stopping the elimination of the corporate income tax — which has failed to deliver the wage increases that proponents promised — policymakers can instead drive dollars directly to working families. When fully enacted, the elimination of the corporate income tax will cost the state more than $2 billion in a single year, far exceeding the $482 million it would take to enact a state EITC at 20 percent of the federal credit. In a state where nearly half of renter households are paying more than 30 percent of their income on rent — and two-thirds of renters or more in some counties — legislative leaders should choose communities over corporations and guarantee that income reaches households that need it the most.
To fully realize the benefits of a state EITC, North Carolina also needs to ensure that eligible families actually receive tax credits: only 79 percent of NC households eligible for the federal EITC claimed it in tax year 2021. Policymakers should close this gap by streamlining access to free tax preparation services in every community and investing in direct filing options that would reduce the paperwork and stress of tax filing for many North Carolinians. State funding for free tax preparation infrastructure would immediately generate returns by putting more dollars in the pockets of workers, who will spend it in ways that support their families and local economies. If every eligible family had claimed the federal EITC in recent tax years, more than $300 million additional dollars would have flowed through North Carolina communities each year and supported spending on necessities like food and housing.
NC can — and should — choose communities over corporations
An EITC is one of the most proven anti-poverty tools available to lawmakers. It provides a direct way for policymakers to ensure that people working essential jobs in every community have the income to meet more of their household’s basic needs. Working families and all of us who depend on and value their contributions should demand policies that put their wellbeing first. This is how we will ensure North Carolina’s economy continues to move forward.
