March 2006

The State EITC Online Resource Center is pleased to present its electronic newsletter on current policy developments around state and federal Earned Income Tax Credits. For more information, please go to: www.stateeitc.com.

Feel free to forward this newsletter to your interested associates and to email amy@thehatchergroup.com with news, information or other resources to be added to the update. If you do not want to receive this newsletter in the future, please reply with the word UNSUBSCRIBE in the header.

In this edition of the policy update:

• Nebraska EITC Bill Now Part of Tax Package
• Connecticut Coalition Continues to Push for EITC
• New Mexico EITC Dies in Short Session; Advocates Optimistic for 2007
• Tax Relief Likely in Hawai’i – Advocates Hope EITC will be Part of Package
• Policy Matters Ohio Releases New Report
• Alabama Legislature Passes Tax Plan Similar to Non-Refundable EITC
• Pennsylvania Legislature Considering Both Minimum Wage Increase and Refundable EITC
• Center on Budget and Policy Priorities Updates “A Hand Up” Report
• CBPP Releases Report on How State Income Taxes Affect Low-Income Families
• The Brookings Institution Releases Three New Research Tools on the EITC

Nebraska EITC Bill Now Part of Tax Package

The State EITC coalition in Nebraska continues to advocate for the EITC and has high hopes that it will become law. Many members of the coalition testified on the original EITC bill that would have created a 20 percent refundable credit. While all other tax credit bills were killed by the Revenue Committee, the EITC legislation held strong with the help of Revenue Committee Chairman, Senator David Landis. The bill was amended to create an eight percent refundable EITC and was attached to the Revenue Committee’s tax package bill. "Most components of the tax package focus on middle to upper income citizens. This, coupled with budget and tax proposals occurring at the federal level, makes it particularly important that Nebraska's Revenue Committee bill includes something for low-income families," said Kathy Moore, executive director of Voices for Children in Nebraska. "Additionally, the success of this effort will strengthen the commitment of the EITC Coalition to work on additional proposals next year."

Article in Lincoln Jounal Star about the tax package
Op-Ed in Lincoln Journal Star about creating state EITC
Fact Sheet

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Connecticut Coalition Continues to Push for EITC

The Connecticut Association for Human Services (CAHS) and CT Voices for Children continue to push for the enactment of a 20 percent refundable EITC. The coalition had a large turnout at the Human Service Committee public hearing on the EITC bill with 22 individuals submitting testimony. The Human Services Committee voted the bill out of committee and referred it to the Finance, Revenue & Bonding Committee. The coalition hopes that the state EITC is included in a comprehensive tax package.

Read testimony by CAHS and CT Voices for Children
Editorial in the Hartford Courant

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New Mexico EITC Dies in Short Session; Advocates Optimistic for 2007

Gov. Bill Richardson included a 7.5 percent refundable EITC in his 2006 tax package. Called the Working Families Tax Credit, the measure was supported by Speaker of the House Ben Lujan, as well as a coalition of advocates including New Mexico Voices for Children. The bill had passed the tax committee unanimously. Eventually the WFTC was rolled into an omnibus tax bill that passed the House with only a few dissenting votes, but was not voted on by the state Senate, and therefore died at the end of the 30-day session in mid-February. "The 30-day session was an obstacle for the Working Families Tax Credit," said Kay Monaco, executive director of New Mexico Voices for Children. "We are hopeful that next year we can get a 10 percent credit through the legislature with the continued support of Governor Richardson."

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Tax Relief Likely in Hawai'i - Advocates Hope EITC will be Part of Package

Hawai'i has a $580 million budget surplus which has caused a flurry of legislative tax proposals by the governor and the legislature to help Hawai'i's working families. Governor Linda Lingle has recommended a package that includes a tax rebate, a tax credit for food and medicine, expanding the income tax brackets and an increase in the standard deduction. At the same time, House Republicans have introduced a 20 percent refundable EITC and several Senators are supporting adjusting the tax brackets. 3Point Consulting, a Honolulu-based public interest research and consulting firm, has created a policy guide that discusses the different tax relief proposals, and gives its own policy recommendation for providing tax relief to working families.

Read the 3Point Policy Guide

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Policy Matters Ohio Releases New Report

Policy Matters Ohio released a new report, "Credit Where It's Due: The Earned Income Tax Credit in Ohio," that gives an overview of how the federal EITC benefits Ohio and how a state EITC could further help Ohio's working families. The report finds that 65 percent of Ohioans receive the EITC, but more than 60 percent buy high-interest refund-anticipation loans. David Rothstein, the report's author, outlines the cost of implementing either a 10 or 20 percent refundable EITC and recommends using some of the state's TANF funds to help pay for a state EITC. EITC legislation was introduced in January 2005 but remains in the Ways and Means Committee.

Read the press release
Read the report

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Alabama Legislature Passes Tax Plan Similar to Non-Refundable EITC

The Alabama House of Representatives and Senate both unanimously passed a tax package sponsored by Rep. John Knight and endorsed by Alabama Arise that would raise the state income tax threshold from $4,600 to $12,600 next year. The bill also expands the dependant and standard deduction for incomes under $20,000 and phases out the standard deduction for incomes between $20,000 and $30,000. The legislation would give a family of four living on $15,000 a $260 tax cut in 2007. "It took some intense negotiations between Gov. Riley and Rep. Knight," said Kimble Forrester, state coordinator for Alabama Arise. "But in the end, Alabama's lowest-income working families will no longer have to pay taxes that they cannot afford to pay."

Read Alabama Arise Newsletter about the tax package

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Pennsylvania Legislature Considering Both Minimum Wage Increase and Refundable EITC

The Pennsylvania House of Representatives Finance Committee heard testimony on the Earned Income Tax Credit last week. The legislature is considering both a 30 percent refundable EITC and an increase in the minimum wage. Nick Johnson from the Center on Budget and Policy Priorities and Jean Hunt from Campaign for Working Families testified on the need for EITC and a minimum wage increase.

Read:
House bill and Senate bill
Testimony by Nick Johnson, Center on Budget and Policy Priorities
Testimony by Jean Hunt, Campaign for Working Families

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Center on Budget and Policy Priorities Updates "A Hand Up" Report

Ami Nagle and Nicholas Johnson of the Center on Budget and Policy Priorities (CBPP) updated "A Hand Up: How State Earned Income Tax Credits Help Working Families Escape Poverty in 2006." The report discusses reasons for enacting a state EITC and how to design and finance a state EITC.

Read the report

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CBPP Releases Report on How State Income Taxes Affect Low-Income Families

"The Impact of State Income Taxes on Low-Income Families in 2005" by Jason Levitis and Nicholas Johnson of the Center on Budget and Policy Priorities examines the tax liability of low-income families. "In 19 of the 42 states that levy income taxes, two-parent families of four, with incomes below the federal poverty line, are liable for income tax. In 16 of the 42 states, poor single-parent families of three pay income tax. And 31 of these states collect taxes from two-parent families of four with incomes just above the poverty line," the report notes. CBPP also created state-specific fact sheets to accompany the report.

Read the report

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The Brookings Institution Releases Three New Research Tools on the EITC

"The EITC at Age 30: What We Know," by Steve Holt, is a research brief that reviews the history of the EITC and summarizes key research. The brief also examines several issues surrounding the credit and proposes ways to improve the effectiveness of the EITC.

Read the report

"The New Safety Net: How the Tax Code Helped Low-Income Working Families During the Early 2000s," by Alan Berube, is an analysis of IRS data on low-income working families who receive the Earned Income Tax Credit between tax years 2000 and 2003. The analysis shows that:

• The number of taxpayers receiving the EITC rose to 21.4 million in 2003, up 14 percent from 2000.
• In 2003, the average EITC recipient earned a credit of $1,788, and EITC dollars accounted for 68 percent of recipients' net tax refunds.
• The proportion of EITC recipients who filed their returns through paid tax preparers increased from 65 percent in 2000 to 71 percent in 2003.
• Fewer than 8 percent of EITC recipients with qualifying children in 2003 received the Child and Dependent Care Tax Credit (CDCTC) to offset their child care costs.
  
  The report concludes with recommendations for policymakers.

Read the report

One-Page Fact Sheets: Key Trends Among Low-Income Taxpayers, 2000-2003 is a summary of key trends among low-income taxpayers between tax years 2000 and 2003 for 122 cities in large metropolitan areas. The EITC is featured in these one-page fact sheets.

Find your state-specific fact sheets

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