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Refundable tax credits would be a credit to N.C.

Rob Schofield RALEIGH – Nothing is certain in life except death and taxes. Benjamin Franklin’s adage was accurate when he penned it two-and-a-half centuries ago, and it’s still accurate today. Everybody will eventually die, and everybody will pay taxes in the meantime.

A look at some North Carolina data confirms the accuracy of Franklin’s observation. Everybody pays. Under current law, the poorest North Carolinians (households with incomes well below the poverty line) pay over 10 percent of their annual incomes in state and local taxes combined (income taxes, sales taxes and property, excise, energy taxes, etc.).

If any group of individuals comes closer to avoiding Franklin’s law in modern North Carolina, it’s the rich. Once various deductions are applied, the wealthiest 1 percent of households pay only about 6 percent of their incomes in state and local taxes.

Unfortunately, elected officials are acting as though Franklin’s timeless rule has become obsolete. Not only are lawmakers seriously considering a proposal to cut income taxes on the rich, they’re resisting the adoption of a special tax credit to help the poor called a refundable earned income tax credit, or EITC.

The hesitance concerning the refundable EITC appears to be a simple matter of failing to grasp the modern applicability of Franklin’s law: Legislators think the poor don’t pay taxes. They are incorrect.

With a refundable EITC, very low income families can actually receive more back on their income tax refund than they paid to the state in income taxes. This has led some to label the EITC "welfare." The concern is that the state would somehow be providing the poor with a free handout.

As the numbers above remind us, however, this concern is unfounded. While poor families might end up ahead with respect to their state income tax liability, the credit refunds only some of the other taxes they have contributed to state and local coffers.

Poor people will still pay a sizable portion of their incomes in state and local taxes even after they receive their refundable EITC. Franklin’s law will be honored. And the federal EITC, enacted more than 30 years ago, has always been refundable and has won the support of both political parties. (more…)

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