By David Gray
President Obama’s latest budget includes several important improvements to the pro-work Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) that will reduce poverty among low-wage workers and their families, reduce income inequality, strengthen work incentives, and give a boost to Louisiana’s economy — all without adding a dime to the federal budget deficit.
Expanding the now-tiny EITC for working childless adults and non-custodial parents (“childless workers”), an idea that has growing support across political lines, would help nearly 200,000 childless workers in Louisiana.
A childless adult working full time at the minimum wage pays significant federal income and payroll taxes, but receives a federal credit of less than $30. Childless workers are the only group of workers that the federal tax system taxes into — and in many cases, deeper into — poverty.
It’s a different story for families with children, who benefit greatly from the federal EITC and the companion child credit. On average, the two credits lifted 142,000 Louisianans, including 82,000 children, out of poverty each year from 2010 to 2012, making them a powerful anti-poverty tool that encourages and rewards hard work.
Raising the EITC for childless workers and expanding eligibility to include workers between the ages of 21 and 25 will substantially increase their after-tax incomes and incentive to work. This is especially important for less-educated young people who may face multiple challenges when beginning their working careers, helping them gain a foothold in the economy.
The president’s proposal also will significantly help low-income working families with children by making important improvements to the EITC and CTC permanent. These improvements, first enacted in 2009 and set to expire in 2017, have made more low-income working families eligible and boosted the credit for many others. In 2013, 231,482 Louisiana families benefited from these improvements, and each year between 2009 and 2012 they lifted an average of 27,800 Louisianans, including 16,900 children, out of poverty.
The EITC has a proven track record of boosting employment among parents, such as the increases in work among single mothers and female heads of households that have occurred since the EITC expansions of the 1990s. That’s because only families who have earned income from work during the year can qualify. Nearly 30 percent of all Louisiana households receive the credit — including an estimated 33,000 veteran or active-duty military families with children. These families often use their tax credit for basic necessities such as car repairs, medical bills or to buy school supplies.
Research has shown that children in families who receive the EITC experience significantly increased tests scores, are more likely to attend college and go on to earn more as adults.
Expanding and strengthening this credit would also help Louisiana’s economy. The EITC alone put about $1.4 billion into Louisiana’s economy in 2011. Expanding eligibility will allow more workers to keep more of what they earn and, in turn, spend those dollars here in our state.
In addition to the federal EITC, Louisiana is one of 25 states that offer a supplemental state credit. Our state’s credit is refundable (meaning any remaining credits beyond a taxpayer’s liability will be refunded to the taxpayer) and is set at 3.5 percent of the federal credit. State lawmakers should take advantage of this efficient and effective tax credit by doubling its value — providing a greater incentive to work and helping more low-income families live above the poverty line.
Unfortunately Louisianans must wait until next year for state lawmakers to adjust the program since our Constitution prohibits them from tinkering with tax credits during legislative sessions in even-number years. In the meantime, our elected officials in Washington D.C. should support the president’s proposal to expand the credit for childless adults and non-custodial parents, and to extend important improvements for families with children. These proposals allow the credits to do more to increase employment and reduce poverty among low-wage workers.