Letter to Lawmakers: Renew and Improve Refundable Tax Credits For Working Families

Delivered to North Carolina's federal delegation
May 27, 2010

Dear North Carolina Legislator:

You have an opportunity to help low-income working families withstand the loss of income from the recession, prevent millions from slipping into poverty, and sustain economic growth, now and for years to come. These vital goals can be achieved by continuing and building upon the improvements made to refundable tax credits now in place to assist children, their working parents, and students.

The undersigned are organizations from across the state, representing people of faith, providers of essential services, policy experts, and community leaders. We come together to urge the speedy renewal and improvement of the refundable Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit.

We ask you to consider the following:

1)    Improve and Preserve the Refundable Child Tax Credit (CTC).
The Child Tax Credit was enacted in 1997 and made partially refundable in 2001 for households with earnings above a $10,000 threshold.  By 2007, inflation had increased this threshold to almost $12,000, although wages for low-income workers had not kept pace with inflation.  In 2009, Congress improved upon the CTC by reducing the threshold to $3,000 of earnings.

With the improvements made in 2001 and 2009, a family with two children working full-time at the minimum wage currently receives a Child Tax Credit of about $1,750. If Congress does not act to extend the current levels, the same family will receive only $250, a loss of $1,500. This loss occurs because earnings of $3,000 or more count in calculating the Credit under current law, but only earnings higher than about $12,850 would count if improvements in the Child Tax Credit made since 2001 are allowed to expire.

If the current Child Tax Credit improvements expire 594,000 North Carolina children would lose all or some of their credit, according to the Tax Policy Center.

We strongly urge you to prevent this harm to children, and help low-income working families further by counting the 15 percent credit from the first dollar of earnings, as passed in December by the House in its Jobs for Main Street legislation. This strong work incentive and family support would provide the family working full-time at the minimum wage with a credit of $2,000 - reducing poverty instead of allowing it to deepen.
2)    Retain Help for Families with Three or more Children and Reduce the "Marriage Penalty" in the Earned Income Tax Credit.

In 2009, Congress improved upon the EITC by increasing the amount available to families with three or more children and reducing the "marriage penalty" in the EITC by increasing the amount received by married couples.

In 2009, the maximum EITC for a family with three or more children was increased to $5,657, or $629 over the amount available to families with two children. The increase is important because it responds both to the increased costs of raising more children and to the greater likelihood of poverty in larger families.

The changes to the credit for families with three or more children affect 270,000 North Carolina children and 82,000 households in the state. 

According to analysis by the Center on Budget and Policy Priorities, the expansions to the Child Tax Credit and the Earned Income Tax Credit lifted 40,000 North Carolinians out of poverty, 22,000 of whom are children under the age of 18.

Please vote to preserve these improvements.

3)    Help Low-Income Students Afford to Go to College through the American Opportunity Tax Credit:
The 2009 changes to this credit (formerly known as the Hope tax credit) could benefit thousands of North Carolina low-income prospective college students by providing up to $1,000 in a refundable credit to help pay for college costs. (The full tax credit was increased to $2,500, with up to 40 percent available to students among the millions of those who do not owe federal income taxes, although they are likely to pay significant amounts for payroll and other taxes.)

Before this improvement, families with students saw little to no benefit from the non-refundable Hope tax credit, and a married couple with one child in college and another younger child would be ineligible for the credit if their income were below $26,000. Similarly, low-income single adults attending college can receive at least a partial credit.

In this time of high unemployment (with one in four 16-19 year-olds unemployed), it makes sense for youth and adults alike to upgrade their skills and prepare for jobs with career potential. Most federal tax assistance for college study is primarily helpful to households with incomes of $100,000 - $200,000. The American Opportunity Tax Credit deserves your support because it will make it possible for millions of low-income students who would otherwise be excluded to afford higher education.

Preserving and building upon the improvements made to these three refundable tax credits will help parents whose earnings have dropped in the recession, and help children, families and the economy by preventing disastrous reductions in purchases of food and other necessities. These credits also provide significant help to families just over the poverty line, easing their daily struggle to make ends meet.
Please remember these children, students, and families by supporting the improvements in the Child Tax Credit, Earned Income Tax Credit, and American Opportunity Tax Credit as you consider tax legislation this year.
Action for Children North Carolina
American Association of University Women-North Carolina Chapter
Autism Society of NC
BJM Speech/Language Therapy & Rehab Services, Inc.
Center for Community Self-Help
Cherokee Business Development Center
Children First/Communities In Schools of Buncombe County
Children's Home Society of NC
Community Developers
Consumer Credit Counseling Service of Fayetteville
Durham's Partnership for Children
EITC Carolinas at MDC, Inc.
Empowered Solution
Fiscal Progress
Guilford County Homeownership Center
IDA and Asset-Building Collaborative of North Carolina
Latino Community Credit Union
Legal Services of Southern Piedmont
Lynhill Child Development Center
MDC, Inc.
NASW-NC Chapter
NC Community Action Association
NC Community Development Initiative
NC Housing Coalition
NC Indian Economic Development Initiative
NC Pediatric Society
NC Justice Center
North Carolina Indian Economic Development Initiative
North Carolina Social Justice Project, Inc
OnTrack Financial Education & Counseling
Public Interest Law Organization at N.C. Central University
Strong Able Youth Speaking Out (SAY SO)
Self-Help Federal Credit Union
Sequoyah Fund
United Way of North Carolina
Youth Empowered Solutions (YES)