Historically, Democrats and Republicans have seldom seen eye-to-eye on any tax issue — except the Earned Income Tax Credit (EITC), a refundable tax credit at both the state and federal levels given to the working poor. Conservatives support it because it’s connected to earned income; liberals believe the government should provide financial support to needy families.
Today, an estimated 28 million low and moderate-income families could benefit from the EITC (eligibility is determined by annual household income, the number of hours worked and number of children), which is now widely regarded as the most successful way to get families above the poverty line, according to policy analysts.
As bickering across the aisle creates an impasse in our nation’s capital, lawmakers in California recently approved a bipartisan solution (introduced by a Republican, passed by a Democratic dominated legislature) that could provide a model for federal lawmakers debating tax reform and how best to help struggling Americans.
THE RIGHT BACKS AWAY
Introduced in 1975, Congress passed the federal EITC at a time many other welfare programs were being criticized for their wild inefficiencies (most were eventually scrapped). Its aim: To get people back to work and off of public assistance by returning a portion of their income tax payment.
Throughout its existence, the credit has been expanded by every president, with Ronald Reagan (who called it “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress”) backing one of the biggest increases.
In 2016, The American Action Forum, a conservative-leaning economic policy group, recognized the benefit of expanding the credit. And a 2014 House Budget Committee Report, headed by Republicans, said the credit was “an effective tool for encouraging and rewarding work among lower-income individuals, particularly single mothers.”
Despite this, Republican support has dwindled in recent years as far right members of the GOP advocate for significant cuts to government spending.
In 2014, Sen. Marco Rubio of Florida said he would agree to an expansion of the EITC, but only if it wouldn’t result in increased spending. (Experts said that growth of the program would inevitably mean more money would be returned to workers, costing the federal government an estimated $91 billion, based upon 2015 tax code.)
Conservatives have also argued that there’s no need to expand the EITC since an increase in the minimum wage would provide the same monetary benefits to workers.
And there is concern about fraud. The Internal Revenue Service estimates close to $13 billion in credits, or 21 to 26 percent of filings, were given out that likely shouldn’t have been.
PLAYING CATCH UP
California has been a progressive leader in sustainability practices and social programs, but until recently, its EITC efforts lagged behind states like Maryland, Minnesota and Rhode Island, all which expanded their credit programs in 2014. (Rhode Island legislators backed further expansion last year.)
“California has the nation’s highest poverty rate, counting the cost of living, and families still need to make several times the federal poverty level income to afford basic necessities,” states an opinion piece in the Orange County Register, adding that families would need a minimum wage of $31 per hour to survive in the state.
By these standards, an expansion was necessary.
In June, the state expanded its EITC to meet the minimums needed for a family to get by in one of the nation’s most expensive states, where the average rent is 50 percent higher than the rest of the country.
The expansion enables independent contractors and freelancers working in California’s gig economy to qualify for the credit, now mirroring federal and other states’ rules. It also increased the minimum income requirements from $13,870 to $22,300 so that families earning the state’s new minimum wage could qualify.