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State EITCs Continue to Gain Momentum

There’s growing momentum in the states to adopt and expand state-level earned income tax credits (EITCs). In 2017, Hawaii, Montana, and South Carolina each created a new EITC, and California, Illinois, and Minnesota expanded their existing credits, as we’ve highlighted in a paper released today. That brings the total count to 29 states plus the District of Columbia that use state EITCs to boost the incomes of roughly 11 million working households struggling on low pay (see map).

The credits build on the federal EITC’s proven record, helping people keep working, make ends meet, and improve their children’s life chances. Like the federal credit, state EITCs also help build an economy that works for everyone, including many women and people of color not fully sharing in the gains of today’s economy.

As the 2018 legislative sessions begin, momentum for state EITCs seems strong. Support for new or expanded credits — most of it bipartisan — includes the following:

  • Utah: The state House passed a state EITC targeted at working families experiencing intergenerational poverty, and it now moves to the state Senate.
  • Missouri: Governor Eric Greitens proposed a new state EITC, and state legislators in each house have proposed bills to do the same.
  • Massachusetts: Governor Charlie Baker proposed an increase in the state’s credit to 30 percent of the federal credit, up from 23 percent, and bills that go even further are pending in the legislature.
  • Maryland: Lawmakers are considering expanding their EITC for workers not raising dependent children.
  • Hawaii: Lawmakers have introduced a bill to improve the state’s new credit so that workers can keep the full value of the credit they earn (rather than have it limited to an offset of their state income taxes, as it is now).

State lawmakers are wise to advance state EITCs, for several reasons:

  • State EITCs, which eliminate some or all of a family’s state income taxes and in most states offset other taxes, are a sensible way to help working families make ends meet. They help families afford the things they need to keep working, like child care and transportation.
  • State EITCs also help working parents better meet their children’s needs. Studies show that when families with low incomes get an income boost, their young children tend to do better and go further in school, and the greater skills they acquire tend to raise their earnings in adulthood. That means a stronger future economy.
  • State EITCs also make state tax systems fairer. In almost every state, low- and moderate-income families pay more in state and local taxes, as a share of their income, than upper-income families. That’s because states and localities rely heavily on sales, excise, and property taxes, which fall more heavily on low-income families.

States can reduce financial hardship and create economic opportunity even more by adopting or expanding a state EITC in tandem with raising the minimum wage, as we’ve noted in another paper released today.