Highlighting State EITC Efforts on Tax Day

Apr 15, 2013

By Helly Lee and Lavanya Mohan

It’s tax day and for many months now, Volunteer Income Tax Assistance (VITA) sites across the country have assisted working families with their taxes in time to meet today’s deadline. By filing taxes, many low wage workers and families are able to get important refundable tax credits.  Among these is the Earned Income Tax Credit (EITC),  one of the largest anti-poverty programs having reached more than 27 million families and individuals in 2012 and that has far-reaching work, income and health benefits for its recipients. In fact, EITC lifted 6 million people out of poverty in 2011, according to the latest Supplemental Poverty Measure.

Because of the federal EITC program’s proven anti-poverty success, many states have adopted similar state-level Earned Income Tax Credits added onto the federal EITC. Low-income families and individuals who are eligible for the federal EITC are also eligible for the additional state EITC. Currently, 26 states provide a state EITC, 23 of which provide a refundable or partially refundable EITC. In facing tough budget decisions, however, many states have turned to the EITC as a place to cut costs while other states are pushing for improvements to their state programs.

Legislators in states such as New Jersey and Colorado have made efforts to increase their state EITC for working families. In the case of New Jersey, this month the senate approved bill S.2535, which will restore the state’s EITC to 25 percent of the federal credit. Additionally, the Colorado state senate approved bill S.B.1 which will enact a permanent state EITC at 10 percent of the federal credit.

Heading in the opposite direction, however, are states such as North Carolina and Michigan that have already reduced this vital tax credit, and many other states are considering proposals to do the same. Last month, North Carolina’s governor signed a bill that reduced the State’s EITC from 5 percent of the federal credit to 4.5 percent. When Michigan reduced the state EITC from 20 percent to 6 percent of the federal credit earlier this year, many families, including approximately 10,000 military service members who previously qualified and received the Michigan EITC, will now lose this credit and see an increase in taxes for their families.

On a positive note, state advocates nationwide are pushing to increase the EITC. In Michigan, for example, various bills introduced in both the state senate and house are proposing a restoration to 20-25 percent of the federal EITC. Similarly, states such as Kentucky and Minnesota have introduced measures to increase state EITC as part of overall tax reform packages. A recent report shows that the expansion of the EITC program in Ohio, which is also considering a state EITC, would provide 800,000 working families with an average refundable credit of $446 annually.

Over the past two decades, the EITC has received bipartisan support because it is an effective anti-poverty program that rewards working families. In that spirit, as states consider their budget proposals, CLASP urges states to consider the overwhelmingly positive effects of the EITC and keep intact or expand their EITC programs.

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