Worst Idea on the Table for 2011: Cutting State EITCs

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Tax increases on low-income working families hit hardest by the economic downturn are on the table in a handful of states, where lawmakers are considering eliminating or reducing their state Earned Income Tax Credits (EITC) as one small “solution” to their large budget shortfalls.  The proposal under consideration in Wisconsin is perhaps the most egregious, where governor-elect Scott Walker has also pledged to cut taxes for his state’s wealthiest households and corporations. 

In search of reasons to “examine” and potentially cut the credit, Wisconsin lawmakers have begun to voice concerns about the increased cost of their EITC program.  But the reason for this increase is obvious: millions of Americans are experiencing reduced work hours and wages, or are without a job at all, as a result of the lingering economic downturn.  This means that more families are in need of the additional income assistance the credit provides to help pay for food, housing, transportation, and other necessities. Proposals to cut state EITCs amount to kicking these vulnerable families while they're down.

Furthermore, the federal government recently recognized the hardship these families are facing and decided to expand the benefits of the federal EITC program.  Since state EITCs are calculated as a percentage of the federal credit, this translates into a very small increase in the cost of state EITCs.  Reducing these state EITCs now would essentially cancel out some of the much needed progress being made on this issue.

Unfortunately, state lawmakers will continue to grapple with significant budget dilemmas in 2011 and beyond.  But balancing their budgets on the backs of those families hit hardest by the recession should be a nonstarter.   When asked about the potential threat to Wisconsin’s EITC, Jon Peacock of the Wisconsin Council on Children said, “We would have to question the priorities of any politicians willing to cut the EITC while refusing to adjust the minimum wage for inflation and insisting on giving tax breaks to the wealthiest households."

State EITCs provide affordable, effective, and targeted assistance to the growing number of individuals and families living in poverty.  Rather than eliminating state EITCs, now is exactly the time for states to consider enacting more of these valuable programs, or expanding existing EITCs.

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