Study Supports Bills to Give the Poor and Childless Bigger Tax Breaks
The tax system isn't set up to help low-income people as much if they don't have children. There's a push in Congress and the states to change that.
Four years ago, New York City officials and a group of social scientists launched an experiment based on a simple question: Would a couple thousand dollars a year in extra tax breaks help low-income, childless adults find work and increase their earnings?
Early results suggest the answer is yes, which could boost proposals in Congress and states to expand the tax credit for low-income workers.
A three-year pilot project in New York City offered up to $2,000 in annual tax credits to adults who either have no children or aren't the primary caretaker of their children and make no more than $30,000 a year. Data from 2017 won’t be available until next year, but an interim report from 2016, the second year of the project, found that participants saw their earnings increase by 6 percent and employment by 2.5 percent. Among the participants who were parents, the likelihood of making a child support payment went up 9 percentage points and the average amount they paid each month increased by $54.
Last week, U.S. Sen. Sherrod Brown of Ohio and U.S. Rep. Ro Khanna of California, both Democrats, introduced legislation in Congress that would amend the federal Earned Income Tax Credit (EITC) to give nearly six times bigger refunds to low-income adults in this category. The bills would also raise the income eligibility limit, making the credit available to more people. Brown and Khanna would provide more generous benefits for primary caretakers as well, but those provisions are less of a departure from historical federal tax policy than what they propose for childless adults.
Their plan is the latest to cite and attempt to address what many see as a design flaw in the federal credit: A working single parent with two children can receive a federal tax refund of up to $5,600, but a working single adult -- who may or may not have child support payments -- can't collect more than $506. The income rules are also more strict for single, childless adults, who can't make more than $7 an hour to qualify for the credit. Meanwhile, a single parent with two children can make as much as $21 an hour and still qualify.
Both former President Barack Obama and U.S. House Speaker Paul Ryan have called for a more generous version of the federal EITC that would reward childless adults for finding work and increasing their earnings. But the bill recently introduced in Congress, which would do just that, has no Republican support and is unlikely to make it far considering the GOP controls both chambers.
However, change is more likely to happen at the state level.
Since the recession, a handful of states -- both Democratic and Republican -- have enacted and expanded programs that match a percentage of the federal tax credit, bringing the total number of states with matching programs to 29. Now, states are increasingly paying attention to adults who have no children or aren't their primary caretaker.
"This is about helping people take control of their own lives and encouraging them to work," says Maryland state Sen. Richard Madaleno, who has sponsored a proposal for the past two years that would expand the state's EITC.
The fate of state tax credit proposals tends to hinge on what's happening with the larger economy. During and after the Great Recession, when revenues were down, some states made their state credits less generous. As the economy improved, states revisited the tax credit as a way to boost incomes for workers with stagnant wages.
Politics are also at play.
Madaleno's proposal in Maryland, for example, would result in an estimated loss of between $65 million and $70 million per year in general fund revenues. Last year, when Maryland had a $400 million surplus, ceding tens of millions of dollars in revenue was more palatable. But despite bipartisan support for Madaleno's proposal, it died when lawmakers merged it with an income tax cut for the wealthy. Even Madaleno voted against the larger tax cut package.
This year, Maryland Gov. Larry Hogan and the General Assembly had to close an unexpected $544 million deficit, so Madaleno's bill never even received a committee vote.
"They were looking at budget reductions as opposed to tax cuts," says Robin McKinney, CEO of the CASH Campaign of Maryland. "We didn’t have the moment."
Nonetheless, Madaleno, who is running in the Democratic primary for governor, says he plans to keep pushing for the proposal because he sees it as a strategy to help people who have been left behind by the economic recovery. Part of his pitch for approving the tax break, even when revenues are down, is that it will ultimately help the economy by bringing people back into the labor force, putting money in their pockets and encouraging them to spend it on local businesses.
New York City's study offers some insights as to how a proposal like Madaleno's would work in practice. The study enrolled 6,000 residents as participants, half of whom could receive the expanded credit and half of whom could not. A similar pilot is being conducted in Atlanta, but the final results from that project won’t be available for several years.
Officials in New York City haven't decided if they will expand the local EITC program. At the time of the project's launch in 2013, the mayor's office under Michael Bloomberg ruled out the possibility of a permanent local credit for childless workers, explaining that the city would instead use the results to influence federal policymakers. After two years of promising findings, officials working for now-Mayor Bill de Blasio say they need to wait for the final year of data, plus some additional survey findings, before making any decisions.
Twenty-nine states and the District of Columbia offer a percentage match to federal earned income tax credit program. The table below lists those states, the size of their percentage match and whether the state credits are refundable.
|State||Percentage of Federal Credit||Refundable Tax Credit?|
|California||85% of the federal credit up to half of the federal phase-in range||Yes|
|District of Columbia||40%||Yes|
|Maryland||26%; will increase to 27% in 2017||Yes|
|Minnesota||25-45% of federal credit based on income||Yes|
|Ohio||10%; Limited to 50% of taxes due if taxable income exceeds $20,000||No|
|Oregon||8%; 11% for families with children under age 3||Yes|
|Wisconsin||4% (1 child); 11% (2 children); 34% (3 children)||Yes|