Trickle-up tax policy

Trickle-up tax policy

- in Weekly Briefing

Anti-tax” legislature breaks “pledge” and moves to raise taxes on working poor

For decades, cutting taxes has been something akin to a faith for ideological conservatives. You know the anti-tax sermon and can probably repeat it in your sleep; it is always about “cutting big government” and “giving people back their money” and “spurring economic growth.”

Though impressively consistent, there’s one central and painfully obvious problem with this bit of conservative messaging: it’s bogus. As is demonstrated time and again in the real world policies advanced by ideological conservatives, it’s not taxes that they dislike so much as taxes on corporations and the wealthy.

This is not to say that all conservatives are in on some kind of intentional scam. In fairness, many of the faithful actually believe the propaganda. These people may be misguided, but they really do believe that slashing taxes for everyone (as well as the public systems and structures these taxes fund) is the answer to what ails us.

Unfortunately, like loyal, if ill-informed, parishioners who become blinded to the real world malfeasance and manipulations of their pastors and priests, these true believers are mostly unwitting accomplices in an ongoing deception that their leaders are perpetrating – the deception of “trickle-up” tax policy.

Real world policies

Think about it: a few decades ago, American public policy broadly embraced the concept of progressive taxation – the notion that households and corporations of wealth should bear most of the responsibility for funding public services and systems by paying a higher percentage of their incomes in taxes. Today however, after years of corporate-funded, anti-tax, anti-government rhetoric, this concept has almost been flipped on its head.

In North Carolina, poor people now pay more of their incomes in state and local taxes than do the richest 1% of households. Add to this the tuition, toll and fee hikes that have been imposed on a huge number of core services and the situation is even worse than it appears.

This year, state lawmakers (and, to a lesser extent, Governor Perdue) are actually advancing proposals that would make things even worse by cutting taxes on the corporations and the wealthy even as they’re slashing core public services and structures. Both the Governor and House Republicans are agreed that the state should allow taxes on high income households to fall by allowing a “temporary” surtax to expire. The Governor has also proposed cutting the state income tax on profit-making corporations from 6.9% to 4.9%. Republicans have said the rate should be cut even more or eliminated outright.

All of this would be bad enough by itself, but it’s not the end of it.

This week, state legislators will consider a bill to raise taxes on the working poor. You heard that right: the very same lawmakers to whom all taxes are supposedly anathema will consider a bill to raise taxes.

Slashing the Earned Income Tax Credit

The proposal is House Bill 93 and it does one simple thing: it dramatically reduces the state Earned Income Tax Credit (EITC) by making it “non-refundable.”

Here’s what that means:

Right now, working people of very low-income can receive a credit each year against their state income tax bills if they are also eligible for the federal version of the credit. For some very low-income people, the credit can actually exceed their income tax itself and they will receive a refund. A family might, for instance, owe $200 in income taxes, receive a $275 credit and thus get a check for $75.

The idea is simple and logical: Poor people pay all sorts of other state and local taxes – sales taxes, property taxes, fees etc…. By providing these people with a credit to defray a portion their total tax bill, the state can supplement the wages of very low-paid workers, encourage them to keep working and file tax returns, and put money into the hands of people who will immediately spend it in their communities.

In the most recent year for which data is available (2009), more than 883,000 working families in all 100 counties claimed the state credit, and more than 428,000 families received a refund. The total amount of money at issue is just over $52 million. That means the average EITC refund is around $122 per household.

That’s pretty much all there is to it. The federal EITC was birthed under President Ronald Reagan who staunchly defended it as “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”

Grasping the conservative opposition

Strangely, despite the history and reality of the EITC, Republican leaders are now advancing the bill to end a critical portion of the program. When pressed by advocates for an explanation, one sponsor explained that the $52 million price tag associated with “refundability” was simply too much for the state to afford during this period of budget shortfalls.

To which, a thoughtful person might reply: “Oh really? Is that so? If $52 million is too big of a hit on the budget, why is that not also the case for the plans to cut taxes on wealthy and corporations? And why are the innumerable tax credits that benefit state businesses to the tune of several hundred million dollars each year not equally unaffordable?”

Suffice it to say that there are no good answers to these questions. The EITC is no different than any other income tax credit provided to a North Carolina taxpayer.

For some reason, however, the EITC has always stuck in the craw of some on the right. Fueled by mythology about “welfare queens” and other poor people who supposedly get “wealthy” by taking advantage of government assistance, some conservatives have resisted EITC “refundability.”

For these ideologues, the notion that low income workers might actually receive a check larger than their income tax bill somehow means that people are simply receiving “welfare” – i.e. “something for nothing.” They claim, but never offer any documentation, that low income people engage in fraud to claim the EITC. Others argue that the EITC somehow discourages work by boosting the incomes of low income households.

But, of course, each of these allegations is transparently illogical on several levels.

Welfare? Something for nothing? The EITC only goes to workers with earned income who pay all sorts of state and local taxes that far exceed their refund.

Fraud? Show us the evidence. People are risking prison over $122? Most EITC recipients have very simple tax returns – many of them filled out by professionals and volunteers. The allegation just doesn’t make any sense.

As for the claim that the EITC discourages work, come on, give us a break. Who quits their job because they’ve got an extra $122 per year?

The bottom line

Six weeks into the 2011 legislative session, North Carolina Republicans have voted in complete lockstep on every major issue. To conservatives, this is simply evidence of an impressive level of discipline. To critics, it is evidence of a lemming-like willingness to simply do check one’s personal beliefs at the door and do whatever one is told to do by the powers that be.

In the coming days as lawmakers consider the proposal to raise taxes on the working poor, we should know, once and for all, who is right. If the majority votes once again in complete lockstep to eviscerate the EITC – to actually raise taxes in contravention of conservative philosophy based on such patently weak arguments – a sad truth about the true nature of the GOP agenda will be there for all to see.

About the author

Rob Schofield, Director of NC Policy Watch, has three decades of experience as a lawyer, lobbyist, writer and commentator. At Policy Watch, Rob writes and edits daily online commentaries and handles numerous public speaking and electronic media appearances. He also delivers a radio commentary that’s broadcast weekdays on WRAL-FM and WCHL and hosts News and Views, a weekly radio news magazine that airs on multiple stations across North Carolina.
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