A better way to cut taxes

The Observer editorial board

It’s an election year, and we all know what that means: People are going to be promised stuff.

Both Democrats and Republicans do it, although the promises naturally tend to be different. For Republicans, they revolve around tax breaks, which in themselves aren’t bad so long as they can be paid for without hurting critical programs or vulnerable people.

That, unfortunately, is what’s happened in North Carolina in recent years. Tax cuts that benefit corporations and the wealthy have been paid for with budget cuts, sales taxes and fees that disproportionately harm the poor.

Now, N.C. Republicans are contemplating a new tax break that – on the surface, at least – would help low- and middle-income families. The (Raleigh) News & Observer reported this week that lawmakers are floating a proposal that would raise the standard deduction for personal income taxes by $2,000. That means a married couple filing jointly wouldn’t owe taxes on their first $17,500 in income – up from $15,500.

It’s a shrewd move, politically, because the tax break would help the very people Republicans have been accused of ignoring. For example, the change would result in a savings of $115 a year for married couples making about $44,000. The average savings at other income levels, both lower and higher, would be less. (Those who make more than $200,000 would save less than $10.)

The price tag for the new deduction? Somewhere between $195-$205 million, according to staff projections. That’s worth it if the lost revenue came from the people who can afford it, namely the affluent and corporations that lawmakers have treated so well lately. What’s more likely is that Republicans will pay for the tax deduction with more sales taxes and service fees. For low income North Carolinians, that’ll make the tax savings a wash.

If lawmakers really want to help those families, they should restore the state Earned Income Tax Credit (EITC) that they allowed to expire in 2013. The price tag could be the same: Setting the state EITC at, say, 8 percent of the federal EITC benefit would cost the state about $190 million, according to the Center on Budget and Policy Priorities. (In 2013, the state set the credit at just 4.5 percent.)

But restoring the EITC would focus tax savings on the people who need it most. With the state EITC at 8 percent, a family that makes $30,000 a year could save more than $330 a year versus about $60 with a standard deduction change. For people living paycheck to paycheck, that’s a big difference.

Yes, bringing back the state EITC would help a smaller portion of the population than raising the standard tax deduction, which also means it could offer less political value. But if Republicans are finally going to recognize the people they’ve passed over in tax cuts, they should help those who need it most.