Prosperity Watch Issue 22, No. 3: The Earned Income Tax Credit Benefits Low-Income Working Families Across North Carolina
As tax filing season rolls around, many North Carolina families and communities across the state will benefit from the Earned Income Tax Credit (EITC). The federal EITC, created in 1975 and designed to reward work and offset federal payroll and income taxes paid by families earning low wages, is a powerful tool for poverty reduction. In 2008 North Carolina established a state credit worth 5 percent of the federal credit. The tax credit helps address the upside-down nature of the state’s tax system, which requires low- and moderate-income families to spend a larger share of their income on state and local taxes compared to wealthy households.
The reach of the EITC is vast, with tax filers in each of the state’s 100 counties claiming the tax credit. According to the North Carolina Department of Revenue (NCDOR), one in five North Carolina tax filers – more than 906,000 tax filers – claimed the EITC for tax year 2011, indicating the importance of this credit in a state suffering from persistently high unemployment and a statewide poverty rate of 17.8 percent.
Given the significant differences in wealth, poverty, and economic distress across the state, it is unsurprising that the number of EITC recipients also varies widely across different regions of the state. The map below provides a county-level assessment of the percent of total tax filers that claimed the EITC, levels that ranged from a low of 12.5 percent in Orange County to a high of 41.7 percent in Robeson County. Of the 100 counties across the state, 42 counties had at least a quarter of their total tax filers claiming the EITC. Unsurprisingly, the majority of these counties are rural in the eastern region of the state, underscoring the extent to which eastern North Carolina continues to lag behind the rest of the state in recovering from the Great Recession.
This tax credit is particularly important to low-wage earning families, as North Carolina’s workers have seen their wages fall since the end of the Great Recession despite increased productivity. Moreover, the EITC has been demonstrated to provide a temporary support. The majority of taxpayers claim the credit for one or two years, which indicates that the EITC helps promote economic mobility for low-wage earning families. As the state continues to recover from the Great Recession and low-wage workers seek to meet family needs, the state EITC provides a modest, yet vital, support.