May 2005

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:

• Indiana Legislature Extends State EITC Until 2011
• EITC-Military Report Presses Congress to Protect Funding
• Hawai`i Advocates Look to 2006 for Expanded State EITC
• Optimistic Outlook for Oregon's Growing EITC
• Washington, D.C. Mayor Proposes Increasing District’s EITC
• Center on Budget and Policy Priorities Report Examines the Impact of State Income Taxes on Low-Income Families
• Brookings Institution Report Finds Decline in Refund Anticipation Loan Usage Among Low-Income Taxpayers
• “¿Tienes EITC?” Brookings Fellow Alan Berube Examines EITC in Immigrant Communities

Indiana Legislature Extends State EITC Until 2011

The Indiana EITC was set to expire at the end of 2005, but in a last minute whirlwind of legislative activity, the state legislature extended the EITC until 2011. An earlier bill, introduced by Rep. Mike Murphy (R), called for the elimination of the EITC’s sunset provision, making the credit permanent. In the final weeks of the legislative session, the EITC bill was attached as an amendment to the two-year budget bill that kept the credit equal to 6 percent of the federal credit, but extended the EITC until 2011. The budget was passed by the Republican-led House and Senate and is expected to be signed by Gov. Mitch Daniels (R). The Indiana Institute for Working Families led a coalition to advocate for the EITC this year. “We made great progress this year with the EITC,” Charles Warren, Research Manager for the Indiana Institute for Working Families said. “Now that the credit is extended until 2011 we can concentrate our efforts on expanding the credit and eventually making it permanent.” While the EITC has gained strong bi-partisan support, Indiana still faces a $645 million deficit, so expansion of the credit will heavily depend on state revenues.

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EITC-Military Report Presses Congress to Protect Funding

Together with The Bell Policy Center, The Hatcher Group released a report on the importance of the Earned Income Tax Credit to members of the U.S. military. The study found that more than 150,000 members of the armed forces are eligible for this important credit that provides tax relief for low to moderate-income people.

Read Report.
Read Press Release.
Read Fact Sheet.

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Hawai`i Advocates Look to 2006 for Expanded State EITC

Over the past several years a small, but growing coalition of organizations have been leading efforts to adopt a state EITC in Hawai`i. During the 2005 legislative session both the Republican Administration and the Democratic legislative leadership championed tax relief for low-income families. While the House and the Senate passed versions of a state EITC, the Governor proposed to increase the standard deduction. 3Point Consulting, a local public interest research and consulting firm evaluated the various tax reform proposals, “3Point Policy Brief: An Evaluation of Proposals to Provide Tax Relief to Low-Income Families in Hawai`i.” While the state EITC bills did not pass the conference committee due to unrelated budgetary obligations, this is the farthest a state EITC has made it to date and there is ongoing optimism going into next year’s session. “We were encouraged by how far the state EITC made it this year, and we feel our efforts made a difference,” Brent Dillabaugh of the Hawai`i Alliance for Community-Based Economic Development said. “There is a strong bipartisan element of support for a state EITC and we are confident looking into the future.”

Read the 3Point Policy Brief: An Evaluation of Proposals to Provide Tax Relief to Low-Income Families in Hawai‘i

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Optimistic Outlook for Oregon's Growing EITC

The Oregon House of Representatives moved an important bill forward in April that would increase the state Earned Income Tax Credit for low-income families and make it refundable. Currently, Oregon residents who qualify are eligible for a state credit of up to five percent of the federal EITC. On April 26, the House Revenue Committee approved HB 2046, which will make the credit refundable starting 2007 and will gradually increase the tax relief to 10 percent of the federal credit by 2009. "This level of support in the House is a very encouraging sign," Michael Leachman with the Oregon Center for Public Policy said. "The House floor vote looks good for us at this point. On the Senate side, some Senators disapprove in general of delaying spending on new policies until future budget cycles. This, combined with a significant revenue shortfall for the upcoming budget cycle, is a roadblock; otherwise, the Senate is generally supportive of the EITC."

Read House Bill 2046.
Read Oregon Center for Public Policy Report: Investing in Working Families: Improving Oregon's Earned Income Tax Credit

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Washington, D.C. Mayor Proposes Increasing District’s EITC

Mayor Anthony Williams proposed various tax reforms for the 2006 fiscal year. The mayor’s plan calls for increasing the District’s Earned Income Tax Credit, increasing the personal income tax exemption by $130 per person, raising the standard deduction by $500.

Read about the Mayor’s proposed budget.

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Center on Budget and Policy Priorities Report Examines the Impact of State Income Taxes on Low-Income Families

Joseph Llobrera and Robert Zahradnik of the Center on Budget and Policy Priorities find that in 17 out of the 42 states with income taxes, a large number of two-parent families of four with income below the poverty line continue to owe income tax. Their report examines tax policy in various states and income tax provisions, such as the Earned Income Tax Credit, which are broadly available to low-income families.

Read The Center on Budget and Policy Priorities Report: The Impact of State Income Taxes on Low-Income Families in 2004

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Brookings Institution Report Finds Decline in Refund Anticipation Loan Usage Among Low-Income Taxpayers

An analysis of tax data from the IRS from tax years 1999 through 2002 finds that refund anticipation loans (RALs) declined nationwide in tax year 2002. The percentage of RAL use declined in every region between tax year 2001 and 2002 with the most dramatic decrease in the Midwest.

Read: Step in the Right Direction: Recent Declines in Refund Loan Usage Among Low-Income Taxpayers

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“¿Tienes EITC?” Brookings Fellow Alan Berube Examines EITC in Immigrant Communities

Using ZIP code-level data from the IRS and the 2000 Census, Alan Berube found that over half of all foreign-born individuals in the United States live in 5 percent of the nation’s ZIP codes with most residing in California, New York, and Texas. In these high-immigrant communities, 21 percent of families received the EITC in tax year 1999, compared to 15 percent of families nationwide. Berube makes various recommendations to further harness the benefits of the EITC for immigrant families and communities.

Read: ¿Tienes EITC? A Study of the Earned Income Tax Credit in Immigrant Communities

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