May 10, 2007
The NC House of Representatives has taken the first step towards enacting a 5 percent refundable state Earned Income Tax Credit (EITC) by including it in their Budget Bill. The House Finance committee defeated an amendment offered by Rep. Daughtridge to would make the EITC non-refundable on a party-line vote. Such an amendment is likely to return when the Budget Bill makes it to the House floor.
An EITC is an anti-poverty tool that supplements the income of working poor families. A state EITC will help boost the incomes of more than 700,000 North Carolina families. An EITC will also reduce the number of families with children that are living in poverty that are still required to pay state income tax. Most states do not tax below the federal poverty level. To qualify, individuals must have earned income to claim an EITC. The amount of credit is much greater for individuals with children. The EITC is administered through the personal income tax and is based on the individual?s income, filing status, and number of dependents.
The federal EITC is refundable nationally and in 13 states. A refundable credit allows individuals to receive the full amount of their earned credit. If a family has no income tax liability, the EITC amount the family qualified for would be refunded. Nonrefundable credits limit the earned credit to the individual’s income tax liability.
Unions support an EITC because it will:
- Lift families with children out of poverty;
- Reward and encourage work since only working parents can claim the credit;
- Stimulate the local economy by providing significant relief to low-income working families and giving them more income to spend on housing, goods, and services;
- Encourage savings and asset building. Research shows that a significant number of EITC recipients spent some or all their EITC refunds on financial investments or human capital investments, such as paying for tuition or other education expenses, moving to a new neighborhood, or putting money in a savings account;
- Improve tax fairness by making the tax system less regressive and easing the income tax burden on low-income families.