Just before midnight last night, Georgia’s legislature voted to eliminate a tax credit for 1 million workers earning under $20,000, joining several other states that are cutting (or considering cutting) tax benefits for low-income families. While states face severe budget pressures due to the recession, sacrificing their low-income tax credits is a terrible idea, for a host of reasons:
It hits the people already hit hardest by the recession. State earned income tax credits (EITCs) and other credits targeted on people with low or moderate incomes help reduce hardship among families who have lost jobs or income.
It weakens the economy. These credits put money into the hands of people most likely to spend it — and spend it in their community — to cover necessities like food, clothing, and housing, thereby bolstering the local economy.
It makes state tax systems even more tilted against the poor. In most states, low-income residents pay a much larger share of their income in taxes than wealthier residents. Low-income tax credits reduce this inequity somewhat.
Better budget-balancing alternatives exist. Earlier this year Virginia’s legislature voted to phase out a corporate tax break, but the governor vetoed that measure. Allowing that phase-out to take effect would have saved the state $30 million, more than enough to avert a cut that the state has enacted in its EITC that will raise taxes on an estimated 114,000 low-income working families.