March 2007

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.

With the legislative session in full-swing for many states, and the abundance of EITC legislation being considered, the state EITC online resource center will provide policy updates once a month during the first part of 2007. As individual states pass an EITC we will send a short alert notifying the network about the news.

Reports and Resources:

EITC Data by State Legislative District
The Brookings Institution recently released EITC data by state legislative districts. The data includes total number of tax filers, number of EITC filers, EITC amount claimed, EITC filers by adjusted gross income, number of RALs requested by all filers and number of RALs requested by EITC filers.
Download state-by-state data

Report on Using the EITC to Stimulate Local Economies
Alan Berube of The Brookings Institution wrote a paper for Living Cities discussing the local economic impact of the EITC. Berube states that nationwide between 15 and 25 percent of eligible filers do not claim the EITC, resulting in an estimated $5 billion annually in lost claims. The paper provides recommendations for steps that federal policymakers can take to increase EITC claims.
Read the paper

How Much Would a State Earned Income Tax Credit Cost In 2008?
The Center on Budget and Policy Priorities released a paper describing the methodology used to calculate the costs for enacting a state Earned Income Tax Credit. The paper also contains a chart containing the cost of a 5, 10 or 20 percent refundable EITC for states that do not yet have a refundable EITC.
Read the paper

State Updates:

Arkansas: Gov. Beebe and legislative leaders came to a tax cut compromise that does not include a state EITC. The compromise results in a reduction of the state’s groceries sales tax from 6 to 3 percent and to adjust the state income tax brackets so that families living at or below the federal poverty line would pay no state income taxes.

Hawaii: An effort to create an EITC in Hawaii is gaining momentum. The Center on Budget and Policy Priorities released a report discussing various tax relief proposals in Hawaii and recommending that a state EITC would best target low- and moderate-income families. Hawaii has one of the highest income tax burdens on the poor.
Read the report
Read an editorial by the Honolulu Star Bulletin calling for a state EITC

Illinois: Advocates are working closely with the state legislature to double the state’s 5 percent EITC. The bill unanimously passed the Senate and now heads to the House. The bill faces an uphill battle in the House but advocates remain hopeful. Through companion legislation, Illinois advocates are trying to ensure that every family that qualifies for the state EITC receives the full amount. A wrinkle in its administration has resulted in the withholding of state EITC refunds from several groups of taxpayers, including foster parents. The technical bill that would fix this problem has passed a Senate committee unanimously and awaits floor action before it can move to the House.

Indiana: Legislation that would increase the state’s EITC from its current 6 percent of the federal credit to 9 percent of the federal credit has passed the House and is now awaiting Senate action. The legislation also repeals the current 2011 expiration date for the credit and would make the credit permanent for tax years 2007 forward. A new report by the Indiana Institute for Working Families and Indiana Coalition on Housing and Homeless Issues calls for increasing the state’s EITC to 10 or 15 percent of the federal credit.
Read the report: Investing in Indiana’s Working Families to Build a 21st Century Economy

Montana: A bill to create a 20 percent refundable EITC did not make it out of the House Taxation Committee and failed a floor vote to take it out of committee. A 15 percent refundable EITC bill still remains in the Senate Taxation Committee.

New Jersey: Gov. Corzine recently released his budget which includes improvements to the state's EITC. Currently, only those taxpayers who make less than $20,000 a year are eligible to receive the 20 percent refundable EITC. Corzine proposed raising the threshold to federal eligibility levels which would allow almost 300,000 additional taxpayers to claim the credit. The proposal also includes increasing the EITC to 25 percent of the federal credit, phased in over two years, and extending the credit to households without qualifying children.
Read Gov. Corzine’s budget address
Read an article on the NJ EITC

New Mexico: The New Mexico legislature is close to enacting a state Earned Income Tax Credit. The Working Families Tax Credit bill passed the House unanimously and now is in the Senate. The House amended the original bill to lower the refundable EITC to 8 percent of the federal EITC, but also to allow low-income tax payers to claim both the EITC and another existing low-income tax rebate.

Utah: The Utah legislative session concluded at the end of February. State advocates worked hard during the session to see a state Earned Income Tax Credit passed, but another tax package won out in the end. The tax package simplifies the Utah tax system and functions much like a nonrefundable EITC.