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States Looking to Strengthen Earned Income Tax Credits

March 30, 2015 at 11:00 AM

As states continue to turn the corner on the Great Recession, policymakers in a number of states are looking to help low-paid working families by creating or expanding refundable state earned income tax credits (EITCs). These credits build on the federal EITC, which promotes work, helps families make ends meet, lifts them out of poverty, and yields lasting benefits for kids, studies show.

States considering EITC expansions include:

  • Illinois, where lawmakers have proposed doubling the size of the EITC to 20 percent of the federal credit, helping around 1 million working households.
  • Massachusetts, where Governor Charlie Baker has proposed doubling the EITC to 30 percent of the federal credit, helping more than 400,000 working households. Meanwhile, bills proposed in both houses of the state legislature would boost the EITC to 50 percent of the federal credit.
  • Minnesota, where Governor Mark Dayton has proposed a new EITC expansion — on top of the large increase enacted last year — that would make another 30,000 working Minnesotans eligible and boost the credit for more than four in five current recipients.
  • Rhode Island, where Governor Gina Raimondo has proposed building off of last year’s EITC changes (which cut the credit to 10 percent of the federal EITC but made it fully refundable, producing a net gain for most recipients) by increasing the credit to 15 percent of the federal EITC.
  • Washington State, where Governor Jay Inslee has proposed funding the EITC, which the state enacted in 2008 but has never funded due to the recession, helping over 400,000 working households.

States considering new EITCs include:

  • California, which has the nation’s highest poverty rate under a poverty measure that accounts for taxes and non-cash benefits as well as cash income; a recent proposal to create an EITC would benefit around 3 million working households.
  • Montana, where families with poverty-level wages pay some of the nation’s highest state income taxes; a proposed EITC would benefit 80,000 working families.

A number of states improved their credits in 2014, as our updated paper explains.  Most notably, the District of Columbia expanded the EITC for workers without dependent children in the home, an idea with bipartisan support at the federal level.  Twenty-five states plus the District of Columbia have EITCs (see map).

 

States are smart to use one of our most effective tools to ensure working families recover along with the economy.  State EITCs allow state lawmakers to leverage the power of the federal credit at a relatively low cost.


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