Agenda - 12-04-1995 - Early - Special Work Session

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What Does This Mean? This analysis indicates that the Cato study has some significant flaws and that low- income workers in North Carolina are better off than AFDC recipients in terms of benefits versus income. It does not mean, however, that working for a living guarantees a living wage. The Census Bureau reported that over 4.2 million"families had at least one full-time worker for more than half the year and still lived below the poverty line.full-time Moreover, many studies have shown that the difference between the full-time working poor and AFDC families with no income is quite small. The GAO testified in January that working poor families were still earning below the poverty line and that working 5 poor families on average earned about $160 more per month than an AFDC family. Other researchers have pointed out that more work does not always end up in a greatly improved situation for the working poor versus nonworkers, mainly due to the patchwork of eligibility rules and cutoffs from human services programs. The Cato study concludes that "these goals [of reducing welfare dependency, discouraging illegitimacy and rewarding work] can be accomplished only by cutting benefit levels substantially"6 Cutting benefits, however, does not address the central realities of working for a living in North Carolina: low wages and lack of access to quality health and child care. NYIy ' What Actions Are Policymakers Taking to Make Work Pay? There are two major ways government can make work pay: provide tax relief for low- income earners; or provide programs to supplement low-income wages or offset costs of working, such as child care. Tax Policies The Federal government has been active in providing tax relief for low-income earners. The Earned Income Tax Credit (EITC) has been a principal policy tool for the Federal government to offset increases in payroll and excise taxes for low-income workers, with three major expansions in the EITC in the last decade. As shown in the example above, the EITC provides over $1.20 an hour in after-tax benefits to the low-income working family, which accounts for most of the difference between workers and those entirely dependent on welfare. However, this policy may soon change as both houses of Congress have passed measures to curtail the EITC for many working poor families. By any measure, North Carolina enacted one of the largest tax cuts in the nation in 1995. The changes in the individual income tax will eliminate income tax liability entirely for many low-income earners. For instance, the cutoff for income tax liability for a family of three will increase from $10,400 to $13,900 and for a family of four (with two adults) from $13,000 to $17,000. These measures help alleviate some of the tax burden for low- income families. However, there was no action taken to reduce the sales or property tax