Summary:
- Josh Stein has proposed a “Working Families Tax Cut” as a centerpiece of his campaign’s economic platform
- The tax cut is a reintroduction of the Earned Income Tax Credit
- The Working Families Tax Cut would deliver important benefits low-income families
By Miles Kirkpatrick, Research Associate
In 2013, under a newly cemented Republican supermajority in its legislature, North Carolina become the only state in 30 years to eliminate its Earned Income Tax Credit. With that move, over a million working families in North Carolina lost a key benefit as the state’s tax system was made more advantageous for higher earners. Today, Josh Stein, the Democratic candidate for Governor, is seeking to rectify that error. Stein has made the reinstatement of the Earned Income Tax Credit (under a less wonky name, the “Working Families Tax Cut”) a centerpiece of his economic platform. What would that mean for North Carolinians?
How tax credits work
In the notoriously complicated world of tax policy, tax credits are one of the most intuitive (and, when properly implemented, impactful) policy levers for directly targeting those in need to achieve some specific policy goal. Tax credits are direct reductions in the amount of tax a person owes. These reductions come with certain conditions that typically make up the name of the tax credit, like clean vehicle tax credits for people who purchase electric vehicles or the Saver’s Credit for people who are saving for retirement. Depending on the criteria, governments can use tax credits to encourage certain behaviors or make life a little easier for certain people.
The federal government’s Earned Income Tax Credit (EITC) has existed for almost 50 years. The federal EITC helps “low-to moderate-income workers and families get a tax break.” This credit reduces the federal tax burden for eligible workers and families. State EITCs seek to do the same for state tax burdens. In 2023, 31 states and D.C. had some form of state EITC, although there are many differences in the details.
Some states peg their EITC amount to some fraction of the federal version. In Oklahoma and Louisiana, their EITC is equal to 5% of the federal total, while in our neighbor South Carolina, it’s 125%. In some states, they are refundable, (meaning if the credit is more than the total amount a taxpayer owes, they get a refund) and other states, they aren’t.
The EITC in North Carolina
North Carolina’s state EITC was initially set at 3.5% of the federal EITC in 2007. After years of fighting, expansion, extension, and contraction, it was 4.5% when the new Republican state legislature killed the credit off in 2013.
On the campaign trail, Josh Stein has aggressively promoted resurrecting North Carolina’s EITC. According to his campaign, the average working family in the state could see upwards of $520; for families with three or more children, that rises to $1,486, which comes out to almost $125 extra each month. That would certainly be an economic boost for many of North Carolina’s working families, especially when the cost of living is top of mind for voters. It would also be a welcome reprieve during a time when the same legislature has zeroed out corporate income taxes entirely, leaving those same working families to shoulder more of the burden.
The Republican candidate for Governor, Mark Robinson, has been silent on the earned income tax credit issue. His campaign website only released a list of policies a few weeks ago, and Robinson’s economic “platform” consists of a total of 15 words in three bulletpoints. One of those is “cut taxes for ALL North Carolinians” – which seems to refer to across-the-board tax cuts, instead of those targeted for lower earners.
Naturally, tax policy influences the economy, and a reasonably low tax rate helps families and businesses alike to thrive. But tax rates alone have a spotty and widely debated impact on economic growth, particularly outside of the context of other factors, like infrastructure, or a strong education system that produces workers who are competitive in the modern economy. But “the economy” also doesn’t have bills or kids to feed – taxpayers do. The “Working Families Tax Cut” puts working families first, instead of the wealthiest earners and corporations, who have been the principal beneficiaries of North Carolina’s tax policy for over a decade. It would not only be sound and wise economic policy, but also an expression of value that in North Carolina, people come first.
