Earned Income Tax Credit

Action for Children was instrumental in the passage of the state’s first Earned Income Tax Credit in 2007. The credit at the state level works by supplementing the same federal policy that has been in place since the 1970s. Through the EITC, eligible working families receive a tax credit that boosts their incomes by offsetting their total state and local taxes.

During the first year of the North Carolina EITC, more than 800,000 North Carolinians claimed the EITC, putting a critical $59 million back in the pockets of low-wage workers. The average state EITC value is $113. That figure may not seem like much to some of us. However, $113 may represent a week of food, a car payment to get to work, or school supplies and lunches for a child.

Nearly half of all North Carolina children (46 percent) now live in low-income families. In 2009, an estimated 500,000 of our children lived in families earning less than the federal poverty level ($22,050 for a family of four).  Between 2007 and 2009 the number of North Carolina children living in poverty increased 18 percent-no doubt the result of the state losing more than 300,000 jobs.  Perhaps the most telling fact of our children’s eroding economic security is the rapid growth in the number of children living in extreme poverty-(half the federal poverty level for a family of four or roughly $11,000 annually). The North Carolina numbers are shocking. Today, one of every ten children in North Carolina lives in extreme poverty.

Children who experience economic hardship and excessive adversities encounter what researchers call “toxic stress” that disrupts brain circuits, damages the architecture of developing brains and weakens the foundation for future learning, health and earnings potential. The consequences of economic deprivation during childhood linger into adulthood, often making it difficult to escape poverty.

1. The EITC boosts the income of large numbers of North Carolina’s working families. Roughly 1 out of every 4 working households in NC received the Earned Income Tax Credit for the 2010 tax year.1
2. The EITC directly helps lift children out of poverty. Over a 17 year period, nearly half of American taxpayers with children received the EITC at some point.2 In 2009, research found that the EITC moved 6.5 million Americans out of poverty, half of which were children. 3

The EITC goes to those who help our communities: firefighters to teachers to police officers. Only 2 out of 22 occupations in NC have entry-level salaries that are not income-eligible for the EITC. Firefighters, teachers, home health care aids and police officers are among the North Carolina workers eligible for the credit according to their earnings.4

The EITC helps small business owners. Small business owners who file for taxes as individuals can claim the EITC to help support their families, educate themselves, and keep their businesses alive and growing. 23 percent of microbusinesses claimed the EITC nationwide.5

The EITC is increasingly key to suburban working families. Suburban filers claimed one-third of all EITC funds nationally and accounted for half of the net increase in EITC dollars claimed from 1999 to 2007.6

 Action for Children also advocates for state funds to educate the public about the federal and state EITC programs and participated in outreach efforts in advance of the implementation of the new state credit in 2009. The organization also supports increasing the EITC to a higher percentage of the federal credit.

1 Special Data Request to NC Department of Revenue, March 2012.

2 Dowd, Tim and John B. Horowitz, 2011. “Income Mobility and the Earned Income Tax Credit: Short-Term Safety Net or Long-Term Income Support.” Public Finance Review.

3 Center on Budget & Policy Priorities, “Policy Basics: Earned Income Tax Credit.” Accessed at: http://www.cbpp.org/cms/index.cfm?fa=view&id=2505.

4 Sirota, Alexandra, April 2012. “Supporting Essential Workers: Health, Education and Public-Safety Occupations Benefit from Earned Income Tax Credit.” NC Justice Center, Budget and Tax Center Brief: Raleigh, NC.

5 CFED, “The Tax Code and Microbusinesses.” Accessed at: http://eclkc.ohs.acf.hhs.gov/hslc/tta-system/operations/Fiscal/Financial%20Management/Asset%20Building/TheTaxCodeand.htm

6 Kneebone, Elizabeth and Emily Garr, February 2011. “Responding to the New Geography of Poverty: Metropolitan Trends in the Earned Income Tax Credit.” Brookings Institution, Metropolitan Policy Program: Washington, DC.

Child Tax Credit

 Action for Children supports the creation of a state child tax credit (CTC) and the expansion of the federal CTC to include very low-income families. In 2006, 26 states and the District of Columbia had some version of a child tax credit. The federal Child Tax Credit gives middle-class families a tax credit for each child, but the benefit phases out for very high and very low income families. Data show that over 430,000 children in North Carolina would benefit from an expanded federal CTC.

The current economic downturn and rising costs of gas and food threaten the economic well-being of North Carolina's children, households and communities. Making permanent the expanded eligibility for the federal CTC would provide a much-needed economic stimulus to nearly 380,000 households inNorth Carolina and their local communities. As of 2005,North Carolina's communities received $894 million in federal Child Tax Credit dollars. Permanently lowering the income eligibility threshold would bring in millions more.