The Earned Income Tax Credit is one of the most effective ways to put needed money into the hands of the state and nation’s working poor. The credit alleviates poverty, encourages work and reduces the use of other public benefit programs.
Expanding the credit — and making sure eligible Mainers know about it — can be an important tool to reduce poverty, especially for children.
So, it is good news that the Legislature’s Taxation Committee last week strongly endorsed a bill to significantly increase Maine’s credit. The full Legislature should do so as well. In addition to passing the bill, lawmakers must find ways to offset the cost of the expanded credit, which hasn’t been determined yet. Research has found that the credit, which has far-reaching benefits including reducing incarceration and lowering health care costs, more than pays for itself.
Maine’s credit is only 5 percent of the federal credit, one of the lowest levels among the 29 states that have such a credit.
After being amended by the committee, LD 104 would increase the credit to 23 percent of the federal credit for families with children and expand it to include 18- to 24-year-olds without children, who currently aren’t eligible for the credit. It also allows students and caregivers to be eligible for the credit, at a lower amount.
For adults without children, the bill would increase the size of Maine’s credit from 5 percent to 70 percent of the federal credit. This change is proposed because childless adults receive a small federal credit compared to families with children.
LD 104 also seeks to increase awareness of the credit by directing the Maine Department of Labor to provide employers with notices about the credit to post in their facilities.
If fully funded, an estimated 177,000 households across the state would benefit, including roughly 14,000 family caregivers and 2,000 students, according to analysis by the left-leaning Maine Center for Economic Policy.
Another bill, LD 1491, would establish a working group to examine ways to streamline state tax credits for low-income families, including the EITC. One consideration is to make these payments available throughout the year, not just when tax refunds are issued. This would give working poor individuals and families a more steady and predictable income.
The federal earned income tax credit removes more children from poverty than any other program, Hilary W. Hoynes, a professor of public policy and economics at the University of California at Berkeley, wrote in a 2014 article.
In addition to putting cash into the hands of millions of working families, the credit has dramatically increased employment among single women with children. “The EITC, clearly the cornerstone to the country’s ‘second war’ on poverty, may ultimately be judged one of the most successful labor market innovations in U.S. history,” Hoynes wrote.
In addition, research has shown that this tax credit improves the health of mothers and children, improves education performance, and boosts Social Security benefits. Because the recipients of the credit have few financial resources, they spend their credit on bills and one-time large expenditures, putting the money into local economies.
In Maine, more than 103,000 families received the federal EITC in 2017 with an average refund of $2,158. Another 20,000, by IRS estimates, are eligible for the credit but did not file taxes, so they did not receive it.
At a time when Maine needs more of its residents to join the workforce, expanding the state earned income tax credit is overdue. LD 104 would encourage work, reduce poverty and put more money into local economies. Passing and funding it should be an easy decision.