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Add North Carolina to the list of states considering increasing taxes on the low-income working families hit hardest by the economic downturn.  Republican lawmakers in North Carolina recently filed a bill to convert the state’s refundable 5 percent Earned Income Tax Credit (EITC) to a nonrefundable credit, essentially eliminating the benefit of the program for the lowest income households. 

An op-ed this week by Lucy Gorham, director of the EITC Carolinas Initiative, put it this way: “The Republican leaders won their seats, in part, by pledging not to raise taxes and to represent those North Carolinians who work hard to provide for their families in the face of one of the worst economic downturns most of us have ever lived through. Strange, then, that in one of their first moves in the current legislative session, the leadership proposes to increase taxes on low- and moderate-income working families by eliminating the refundable portion of the state’s Earned Income Tax Credit (EITC).”

North Carolina’s House Finance Committee heard the bill on Wednesday.  Only two lawmakers spoke out in favor of the proposed change to the credit.  Representative Edgar Starnes, the bill’s sponsor, delivered an endorsement of the credit even while he moved to destroy its value.  He said he recognizes the EITC is an extremely good program, but given North Carolina’s large budget shortfall, he claims the state can no longer afford the cost and lawmakers must look to every program for savings, including the EITC. 

Naturally, the opponents of the proposal turned the committee debate into a question of why the majority party was starting with the EITC — an attack on the state’s most vulnerable residents — and suggested they should look elsewhere for the $50 million saved by the regressive change.  

House and Senate Democrats also held a press conference this week to show support for the EITC.  They argued that the refundability is a means to reimburse low-income families for other taxes they pay and pointed out that low-income workers pay a much larger share of their incomes in state and local taxes than wealthier households.  North Carolina’s governor, Bev Perdue, also weighed into the debate via Twitter: “Concerned that EITC bill hurts working families: waitresses, construction wrkrs, store clerks — the backbone of our communities. #NCGA”

The North Carolina Budget and Tax Center has argued that “working class, tax-paying families could no longer benefit from the credit’s ability to help them cover the substantial share of their income they pay in sales and property taxes” if refundability was eliminated.  An ITEP analysis found that eliminating the refundability of North Carolina’s EITC would result in a tax increase for 1 in 10 households.  The Budget and Tax Center also released an interactive map this week that demonstrates the wide-ranging and deep benefits of the North Carolina’s Earned Income Tax Credit.

North Carolina lawmakers will continue to grapple with significant budget dilemmas in 2011 and beyond.  But balancing their budget on the backs of those families hit hardest by the recession should be a non-starter.