PD Editorial: Investing in an incentive to work

What’s the best way to rise out of poverty?

This isn’t a trick question. The answer, liberals and conservatives should agree, is a job.

But it isn’t necessarily a straight path from employment to financial security, especially for people starting out in entry-level jobs with low wages or, as is increasingly common, in part-time jobs. That’s why it makes sense to create incentives to stay in the workforce and climb the ladder to better pay and greater stability.

One of the most effective incentives is the Earned Income Tax Credit.

Enacted by Congress in 1975, it reduces the federal tax burden for low-income workers. For some, the tax credit exceeds their tax bill. They get a check from Uncle Sam - a reward for their labor.

Twenty-five states and the District of Columbia offer similar tax incentives for the working poor. As we have pointed out in the past, California isn’t one of them.

That may be about to change.

A state Earned Income Tax Credit is on the wish list for Assembly Democrats, and Gov. Jerry Brown included one in the revised budget proposal he submitted to the Legislature last week.

As many as 825,000 families with incomes of no more than $13,870 would qualify for fully refundable tax credits, based on wages and number of children. As envisioned by the governor, the credit would average $460 and top out at $2,653.

Total cost: $380 million.

California cut back its safety net during the recession. With the state’s improving fiscal health, it can afford a new program that encourages people to work.

Tax revenue for the current fiscal year is on track to exceed the governor’s projection by $3.1 billion, and it will top the forecast for 2015-16 by as much as $3.6 billion, according to the state’s nonpartisan legislative analyst.

The medium-term outlook is rosy, too. In the fine print of Brown’s budget revision is a prediction that state revenue will continue to grow after voter-approved temporary tax increases start expiring in 2016 - from $108.9 billion in the current fiscal year to $123.5 billion in 2018-19, when the last of those taxes is phased out.

Much of that money is automatically earmarked for schools and the state’s new rainy day fund. Using some of it for Earned Income Tax Credit offers several benefits - economic and political.

It rewards work, providing low-income families some extra cash to pay off debts or perhaps spend a little on wants rather than needs. Many recipients see it as a springboard to upward mobility, according to a recent report in the American Sociological Review.

And it’s not welfare, which many conservatives consider a disincentive to work.

Neither is it a minimum wage increase, which may be warranted, but wouldn’t come without a pitched battle over its cost for employers and whether the primary beneficiaries are the working poor or middle-class teenagers, semi-retired seniors and spouses of higher earners.

The word “investment” gets tossed around a lot in politics. Earmarking some of the state’s growing surplus for a program that rewards work qualifies as an investment in a stronger economy and a hedge against hardworking families sinking into poverty.