PD Editorial: Bring this tax credit to California
California prides itself on being a national public policy leader. Yet when it comes to the earned income tax credit, the state is a laggard. The state has forgone one of the best tools to encourage people to find work and to lift families out of poverty. When the state Legislature reconvenes next week, any discussion of tax reform should include adopting an EITC.
For decades, the federal EITC has provided valuable assistance to low-income taxpayers by reducing their tax burden. Often the credit exceeds what is owed. In those cases, the taxpayer receives the balance as a refund because this is a credit and not a deduction.
The crucial words above are “low-income taxpayers.” The EITC is not welfare. It is a supplement for people who try to get out of poverty but so far have only managed a part-time job or one that pays little more than minimum wage. It creates incentives to work.
It also scales its benefits. The value of the credit goes up with children and income, but there are diminishing returns. Eventually, when one earns what the federal government considers enough, the EITC goes away. Ultimately, a low-income family receives a considerably larger credit than a single person, for example.
Evidence also suggests that the EITC is a more effective tool at lifting people out of poverty than the minimum wage. A higher minimum wage benefits not only poor people, but also teenagers from middle- and upper-income families. The EITC primarily serves poor families.
Not that one is entirely better than the other. Rather, they address different but overlapping groups of people who have different needs.
Self-declared pro-business conservatives who oppose raising the minimum wage should find the EITC an attractive option to assist the neediest Californians. It is not a handout, and it does not increase labor costs. Rather, it is boost for people who work to get out of poverty.
Californians have ample reason to help the poorest among us. There’s a moral imperative, of course, but also practical concerns. Reducing poverty addresses a host of related problems that prove costly to the state. Crime, poor health and poor education all correlate with poverty.
Yet unlike 26 other states, California has not implemented a state EITC. When lawmakers talked about it last year, they punted. They fell back on that oft-used delaying tactic of calling for more study.
The state Legislative Analyst’s Office spent six months doing that study and in December released an assessment of options for a state earned income tax credit. The analysis does not make recommendations. That isn’t its job. Rather, it spells out three options the state might pursue: piggyback on the federal tax credit, target families with the lowest income, or supplement the federal credit for childless single filers. A combination of two or all three also is an option.