Cutting the Earned Income Tax Credit to Balance State Budgets

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March 28, 2011; Source: | Safety net nonprofits probably spend much time trying to divine exactly which programs governors and legislators are going to whack in their attempts to balance state budgets. In too many states, the default choices seem to require cuts in programs that help the working poor.

Michigan Governor Rick Snyder wants to terminate the state’s Earned Income Tax Credit program, which pays an average of $432 to low-income working families. Wiping out the EITC program would contribute $340 million toward closing Michigan’s projected $1.8 billion budget deficit.

Other states contemplating slashing their EITC programs are Kansas, North Carolina, and Wisconsin, while New Jersey’s Governor Chris Christie already cut the Garden State’s EITC program by 20 to 25 percent. Governor Scott Walker’s proposed EITC change would cut credits to working mothers in Wisconsin by an average of $302.

State EITC programs (available in 23 states) help working families with incomes roughly between $36,000 and $49,000, according to the Center for Budget and Policy Priorities. In those states, families that qualify for the federal EITC program get a state refund, calculated as a percentage of the federal tax credit, ranging from 3.5 percent in Louisiana to 40 percent in the District of Columbia. Opponents particularly dislike the “refundable” aspect of some state EITC programs, that families who pay little or no taxes can still get the credit.

Although a couple of states such as Iowa and Connecticut may try to bolster their EITC programs, the overall direction in the country is to take money away from working families. At a minimum, that means a tax increase for the working poor, who then have to turn to nonprofits for assistance with paying for utility, medical, and other bills. More importantly, it signals a willingness of some states to balance their budgets on the backs of the poor, despite the fact that there are probably other programs – and other tax incentives – benefiting more affluent families that could and perhaps should be candidates for termination before states ever get close to slashing the earned income tax credits.—Rick Cohen

  • Mind the Gap

    Your readers might be interested in this video – intro from some brave ladies who talk about how EITC helps them keep their families’ heads above water. Today, many 2-parent families are still struggling because both parents can only find minimum wage jobs without medical insurance. It’s just not enough and without these benefits, more will be pushed out of their homes. Well, preaching to the choir…