In 1975, President Gerald Ford signed the federal Earned Income Tax Credit (EITC) into law, launching an on-going era of bipartisan support for this powerful anti-poverty tool. Since then, EITC has been a substantial benefit for families with young children.
Now a new report from the Massachusetts Budget and Policy Center (MassBudget) looks at what would happen if Massachusetts expanded its own state-level EITC program, which was launched in 1997.
According to the IRS, the federal EITC is “a benefit for working people who have low to moderate income. A tax credit means more money in your pocket. It reduces the amount of tax you owe and may also give you a refund.”
And as MassBudget explains in its report, the Massachusetts’ EITC “is a refundable tax break provided by the Commonwealth to lower-income workers in order to increase the after-tax rewards to work. It is available only to tax filers with earned income and provides benefits primarily to workers with children…”
“The largest credits are provided to families earning between approximately $14,000 and $24,000 a year. The value of the credit declines slowly as income rises and disappears entirely for families earning more than about $50,000. Far smaller credits are available to very low-income filers who do not have children.”
“In 2015, the maximum value of the Massachusetts EITC will be $936. Typically, between 415,000 and 430,000 filers claim the Massachusetts state EITC each year, for a total cost of roughly $134 million in FY2015.”
EITC has had a positive and broad impact on children. MassBudget points to a brief from the Center on Budget and Policy Priorities which says, “that because the earnings boost affects families in a variety of ways, the EITC has benefits throughout the life-cycle.” These benefits include:
– improved health among mothers and children
– better academic outcomes for children
– increased earning potential for future generations, and,
– increased Social Security benefits
Massachusetts could magnify this effect by expanding its EITC program, MassBudget says, noting:
“A stronger state EITC could provide real, near-term help to hundreds of thousands of struggling families, while also laying the groundwork for a more prosperous Commonwealth down the road. Recognizing the benefits of a strong state EITC, at least ten other states offer significantly larger credits than does Massachusetts. Some states offer credits equal to 30, 40, or even 50 percent of a filer’s federal credit. Several of our neighboring states – including Vermont, Connecticut, and New York – all offer significantly larger credits than Massachusetts does.
“If, for example, Massachusetts were to double its match rate to 30 percent, the maximum state credit available to a family would rise from $936 in 2015 to $1,873. For a family of two, the maximum state credit would rise from $832 to $1,664. Other filers likewise would see meaningful increases.
“If instead, Massachusetts were to raise its match rate to 50 percent, the maximum state credit available would rise from $936 in 2015 to $3,121. For a family with two children, the maximum state credit would rise from $832 to $2,774. Other filers likewise would see meaningful increases.”
Earlier this month, the Boston Globe reported that there is wide support for boosting EITC. Governor Charlie Baker has “proposed doubling the tax credit and several state legislators on both sides of the aisle have filed bills to increase it — including one that would more than triple the tax break and give Massachusetts the largest state Earned Income Tax Credit in the nation.”
“To fund the increase, Baker proposed eliminating the film tax credit. State Senator Benjamin Downing, a Pittsfield Democrat who filed a bill to double the size of the state credit to 30 percent, suggests holding the state income tax rate at 5.15 percent, instead of allowing it to fall to 5 percent by 2018 if overall revenue growth meets criteria outlined in a 2002 law, and using the proceeds to pay for the higher credit.”
The Globe adds: “Wages have not increased for the state’s lowest-paid workers in decades, rising 8 cents an hour between 1979 and 2013, adjusted for inflation, to $9.06 an hour, according to the Economic Policy Institute, a Washington, D.C., think tank that advocates for lower-income families.”
As MassBudget says, EITC “helps push back against this troubling trend” of stagnant wages by “providing a meaningful boost to the after-tax earnings of low-income working families.”
It’s a boost that could substantially improve outcomes for many of the commonwealth’s children.