A strong state Earned Income Tax Credit and a robust minimum wage are twin pillars that together form the foundation of a stronger economy — even for those with low-income jobs. Unfortunately, North Carolina state leaders recently demolished one of those pillars and are letting the other one slowly disintegrate.
In North Carolina’s current economy, where the vast majority of job growth is occurring in industries that pay wages below what it takes to make ends meet, the challenge of low-wage work is a reality for more and more families and individuals.
But the economic strain caused by low earnings and the challenge of keeping the lights on, filling a gas tank or making rent ripples beyond those who are directly affected. Low-wage work threatens the economic well-being of everyone in the state by undermining many workers’ ability to support local businesses, build assets and achieve economic security. That is why strong pillars of support for working families like a state Earned Income Tax Credit (EITC) and a meaningful minimum wage are essential components of any effort to build a strong and competitive economy for all.
Before lawmakers allowed it to expire last year, North Carolina’s EITC helped make up for the fact that low-income households pay a greater share of their income in state and local taxes than do the wealthiest households in our state. Only those working for low-wages qualified for the credit and more than 900,000 North Carolina taxpayers claimed it in 2013, its last year on the books, to help support their families’ basic needs.
A minimum wage, on the other hand, provides a wage floor for all workers in the state – a basic guarantee that hard work shouldn’t result in hardship. North Carolina’s minimum wage of $7.25 per hour is tied to the federal minimum which hasn’t been raised since 2009, allowing inflation to chip away at its value.
It will take raising the minimum wage and restoring the Earned Income Tax Credit to reduce poverty and open the way to the middle class for more North Carolinians. In turn, both would put our state on a better path toward economic prosperity and opportunity for all.
The EITC and minimum wage complement each other, with one reaching workers that the other cannot and each delivering benefits to workers at different times of the year. For example, the minimum wage helps the lowest-earning workers regardless of whether they have children, while the EITC gives help mostly to families with children and reaches those who may be earning above poverty-level wages but still struggling, like bus drivers, sanitation workers and teachers.
And while minimum wage increases are reflected in larger paychecks for low-income workers (thus helping them pay monthly bills) the EITC is provided annually at tax filing time. This often provides families with small but significant tax refunds — enough to pay off a debt or make bigger purchases that have been delayed throughout the year, such as car repairs or buying washers or dryers.
A boost in the minimum wage increases the size of the tax credit for families with very low earnings. In North Carolina, reinstating a state Earned Income Tax Credit alongside an increase in the minimum wage to $10.10 would provide an additional boost to working families that is roughly equivalent, at the upper-end, to one-month’s rent. If North Carolina were to set the EITC at 30 percent of the federal EITC (as has been done in some other states), working families would have an extra $1,437 in their pockets – enough for one month of child care for two children or almost four months of food.
Raising the minimum wage and restoring the Earned Income Tax Credit is also an example of the best kind of public-private partnership to improve the economic security of working families. Both private employers and government have a role to play in ensuring that working families can make ends meet. Through these two policies, both sectors share in the costs of achieving that goal. In turn, both reap the benefits in the form of a steadier workforce, lower absenteeism, higher tax revenues and ultimately a more secure middle class.
It is time for North Carolina’s policymakers to recognize that to build an economy that is strong, capable of innovation and competitive globally requires supporting the workers in our state who are struggling to get by. A gradual increase in the minimum wage and restoration of the state’s Earned Income Tax Credit are two building blocks that are fundamental to making work pay.
Alexandra Sirota is the Director of the North Carolina Budget & Tax Center.