EDITORIAL: A State EITC?

by: Brian Leubitz

Mon Dec 04, 2006 at 10:54:05 AM PST

The City and County of San Francisco attempted to provide a local match for the program, called the Working Families Credit. It was partially funded by private corporations, primarily H&R Block, and partially from City coffers.  The program was mildly successful, but there were some inherent problems with the program in that it was a city program and so you had to seek out a seperate form.  Also, H&R Block's involvement was a bit...troubling given their problems with preying on the poor with Refund Anticipation Loans (RAL).

Despite the problems, the idea is a good one.  Many of these problems could be resolved by using a state-based approach.  And hey! Assemblyman Dave Jones has plans to introduce such a bill. (The full press release is over the flip).  This plan provides a 15% match of the federal EITC, a simple plan that is similar to the other 19 states that already have such a match.  It can provide up to $680, depending on your filing status.  It's a great idea, but hopefully one that could be improved upon.

There are several ways to further optimize this program.  First, make Steve Westly's Ready Return Program permanent.  Ready Return simplifies the tax return program by filling out most forms for taxpayers, especially lower income taxpayers who have generally simple tax returns. Ya, yeah, I know this is slightly off topic...but oh wait it's not.  Ready Return would encourage low-earners to a)file b) get all the resources that our programs should provide to them. 

To go along with this, I encourage faster processing of returns for Ready Return filers that would provide faster refunds. This would discourage using high-cost tax prep services like H&R Block and the pernicious RALs.

Another reccomendation, which might be more challenging, is to focus on the cost of living.  Filers who live in more expensive locations (ie LA and SF) should receive more money than those in cheaper locales (ie Barstow, Bakersfield, etc.).  This would require some number-crunching, but would begin the long process of stopping the flight from our cities of all but the most wealthy.

However, as for Dave Jones' bill...Let's do it.  It's a great idea.

Sacramento - Calling the state's high poverty level "unacceptable," Assemblymember Dave Jones (D - Sacramento) today will introduce legislation that would implement a state-level earned income tax credit for California's working families.  The measure, applicable to state taxes, would build on the existing federal Earned Income Tax Credit (EITC), which is among the nation's most successful anti-poverty programs.

"Every day, the vast majority of poor Californians get up in the morning and go to jobs where they work to lift themselves and their families out of poverty," Jones said.  "The EITC is another tool for these hard-working families, boosting children and adults out of abject conditions and onto a path towards better health, education, and prosperity .  It's time for California to join New York, Illinois, New Jersey, and all of the 19 states that have enacted their own versions of the EITC."

Co-sponsored by the California Budget Project and the Association of Community Organizations for Reform Now (ACORN), the bill would provide low-income workers with a tax credit pegged at 15 percent of their federal EITC.  For a family with two or more children making less than $36,350, the legislation would authorize a credit worth $680 per year.  For a family with one child, the maximum credit would be $412 per year.  Adults with no children could qualify for a credit of about $62.  The EITC is a refundable credit, meaning that a family can receive a refund even if they earn too little to face any tax liability. 

To streamline the administration of a state EITC, the bill is designed to "piggyback" on the federal credit, meaning it would parallel the federal program's eligibility criteria and overall design.  The federal EITC has historically enjoyed strong bi-partisan support in part because it encourages work: the credit increases as earnings rise until it reaches a plateau and then gradually declines.  Studies have found that expansions in the federal program implemented between 1984 and 1996 account for more than half of the rise in employment among single mothers in that same period.  Between 1993 and 1996, the EITC provided the incentive to more than a half-million families to move from welfare to work.

The legislation also calls for a corresponding closure of state tax loopholes and unfair "tax expenditures" - special exemptions in tax law that benefit often narrow interests - to ensure fiscal neutrality.

A long-time advocate of the federal EITC, Assemblymember Jones has taken a leading role in reaching out to low-income residents of the Sacramento region to encourage them to take advantage of the credit.  This year, he organized the Sacramento Coalition for Working Families, a group dedicated to increasing the use of both the EITC and the Volunteer Income Tax Assistance Program (VITA), a free service the IRS provides to low and moderate income individuals who cannot prepare their own tax returns.

California's 13 percent poverty rate exceeds the national average, and figures are even more stark among the youngest Californians, with nearly one in five children living in poverty in 2004.  Most families meeting the definition of "poor" ($19,806 for a family of four in 2005) are working, with a full-time worker in about 31 percent of poor families and part time workers in 39 percent.