Tax Credits

State Action Needed

Local governments conduct a range of economic development efforts to support business expansion and employment in their communities. Early childhood services represent an investment and could be included when considering economic development incentives that encourage the retention and growth of local businesses and employment. Some states (Maine, Oklahoma, Florida, Louisiana, Colorado and Oregon) have issued tax credits for early childhood businesses. A similar approach at the local level could be taken to expand the number of spaces available for early childhood services.

Another option is to offer tax credits at the local level to working families. While none of the three localities with working family tax credits (New York, San Francisco and Montgomery County, Maryland) have been used explicitly for early childhood expenses, such a local policy could improve families’ ability to afford early childhood services. This does not have to be administered as part of a tax ling, but rather, as in San Francisco, via an application form made available at tax preparers or community sites. Neither tax credits for early childhood businesses or for families to afford early childhood programming are offered at the local level in North Carolina.

On the business side, no requirement is needed to change local policy regarding economic development incentives. However local governments would need to value early childhood providers as economic development engines and local job creators. On the working family tax credit side, a state child and dependent care tax credit would be an important step. For local level policies to be implemented, the North Carolina General Assembly would need to authorize these payments by local governments.

Opportunities and Challenges

OpportunitiesChallenges
Can supplement existing resources.Typically insufficient to promote systemic change on its own.
Perceived as an investment or incentive for investment, rather than a tax.Difficult to distribute equitably across the state because child care programs may not be distributed evenly across the state. For example, investment in urban areas could be disproportionate.
Serves as additional means to increase funding.Tax credits can be complicated and require active outreach to engage individuals and businesses.
Tax credits for professional development are really wage supplements, particularly to the extent that they are refundable.If not refundable, low-wage individuals may not be able to take advantage of them.
Tax credits are an important incentive for both investing in a social good and enabling investors to realize an economic bene t (i.e., reduce taxes otherwise owed).Businesses without tax liability have little incentive to use tax credits.