When President Reagan signed sweeping tax overhaul legislation that included a major expansion of the Earned Income Tax Credit, he proclaimed that “millions of working poor would be dropped from the tax rolls altogether” and called the legislation “the best anti-poverty bill” to come out of Congress. Both parties strongly favored the EITC, and bipartisan understanding of the struggles of working poor families spread to the states. Nearly half of them enacted a state EITC to complement the federal credit. But, today, the EITC no longer enjoys bipartisan support in some states, as Republicans seek to roll back or block improvements to state credits.
Michigan is a prime example. Yesterday, the House voted to eliminate the state’s EITC — a major shift, since the state enacted the credit in 2006 with near unanimous bipartisan support. The state Senate will likely follow. Republican Governor Rick Snyder proposed the elimination, despite his promises to reduce child poverty. Under the House plan, the credit will be replaced with a token $25 per child tax credit for EITC-eligible children.
This new credit would do almost nothing to offset the substantial state and local taxes that low-income working families pay, and it would not reduce poverty. In fact, we estimate that with or without the child tax credit, elimination of the state’s EITC will push about 14,000 children in working families below the poverty line.
This imminent EITC elimination comes after New Jersey’s Republican governor, Chris Christie, led the charge to cut back his state’s credit last year. Kansas and North Carolina also are considering proposals to roll back credits.
In Iowa, lawmakers passed bipartisan legislation that includes a modest increase in the state’s EITC to 10 percent of the federal credit from 7 percent, but Republican Governor Terry Branstad vetoed it. The EITC expansion would have cost the state about $28 million over two years — a drop in the bucket compared with the personal income tax cuts proposed by Branstad and House leaders that would disproportionately benefit the state’s wealthiest households and cost more than $1 billion over the same period.
Branstad claimed the EITC “isn’t necessarily something that’s going to create jobs.” Yet he proposes hundreds of millions of dollars in business tax breaks in the face of hard evidence — as the Center’s Robert Tannenwald underscored yesterday — that such policies fall far short of the job-creating potential that supporters tout.
State EITCs, on the other hand, do exactly what they promise. By cutting taxes for families earning the least, EITCs help families and, notably, children, rise out of poverty. They reward work (only people with jobs can get the EITC). And they help the economy by putting dollars into the wallets of those most likely to spend them at local businesses.
With a proven record of success, the EITC has enjoyed bipartisan backing over the years. It’s troubling to see that support fade when working families are hurting most.