by German Lopez
Posted In: News
at 10:20 AM | Permalink
Tax credits could be progressive alternative to governor's tax plan
Policy Matters Ohio is now pushing an earned income tax
credit (EITC) that would benefit the state’s poor and middle class,
including more than 822,000 working families. The plan could be a progressive replacement for Republican Gov. John Kasich’s proposed tax
plan, which some reports claim disproportionately benefits the wealthy.
The EITC is a tax credit targeted at working people who
have low to moderate income, particularly those with children. It is
currently used by the federal government, 24 states and Washington, D.C.
The report from Policy Matters,
a left-leaning policy research group, found a 10-percent EITC would
cost about $184 million per year, producing an estimated $224 million in
economic benefits, and a 20-percent EITC would cost about $367 million
per year, producing an estimated $446 million in economic benefits.
If state legislators set aside Gov. John Kasich’s tax
proposals, the state would be left with about $280.4 million in general
revenue available for fiscal year 2014 and about $690.2 million available in
fiscal year 2015, according to an analysis of Kasich’s budget bluebook.
That would be more than enough money in fiscal year 2014 to pay for a
10-percent EITC, and even a 20-percent EITC would only eat up about half
of available funds in fiscal year 2015.
Using a model from the nonpartisan Institute for Tax and
Economic Policy, the Policy Matters report found a state EITC would
benefit Ohioans making less than $51,000 per year. Under a 10-percent credit, qualifying families making less
than $18,000 would get $190 on average, qualifying families making
between $18,000 and $33,000 would get $323 on average and qualifying
families making between $33,000 and $51,000 would get $149 on average,
according to the report.
Under a 20-percent credit, benefits would be bumped up to
$381 on average for qualifying families making less than $18,000 per
year, $646 on average for qualifying families making between $18,000 and
$33,000 and $298 for qualifying families making between $33,000 and
$51,000, according to the report.
These benefits would then be spent in a way that helps
families, local communities and small businesses, according to the
Policy Matters report: “Families that claim the EITC use the refunds to pay for basic
needs like housing, food, transportation and child care. These purchases
stimulate local economies. A number of studies focusing on the economic
impacts of the EITC find that small businesses and other taxes benefit
from a cash infusion into the local economy.”
The report claims a state
EITC would also result in a fairer tax system that better helps the state’s low-
and middle-income earners, stronger incentives to work and better social and economic results
for EITC recipients.
The Policy Matters report touts the federal EITC, which
was created by former President Gerald Ford in 1975 and has been
expanded by every presidential administration since, to support adopting
a similar policy in the state: “The federal Earned Income Tax Credit
does more than any other program to keep working families out of
poverty. … (It) is lauded for its direct impact in keeping families with
children above the poverty line, making work pay, and sending federal
dollars to local communities.”
Anyone making $50,270 a year or less qualifies for the
federal EITC. The tax credit is built so it particularly benefits
families with children, and it “encourages families making at or near
minimum wage to work more hours since the credit has a longer, more
gradual phase-out range compared to other programs,” according to the
Policy Matters report.
The report says the federal EITC has already benefited more than
950,000 Ohio families with an average refund of $2,238.
In previous analyses, Policy Matters found Kasich’s tax
proposals disproportionately benefit the wealthy and actually raise
taxes on the state’s poor and middle class (“Smoke and Mirrors,” issue of Feb. 20). But Kasich says his tax plan will cut taxes for “job creators,” particularly the state’s small businesses.
The governor’s tax proposals are facing bipartisan
resistance, and the Republican-controlled Ohio House is currently
considering setting the proposals aside while the rest of the budget is
worked out, according to Gongwer.
In a press conference on March 14, local officials around
the state, including Councilman P.G. Sittenfeld, suggested dropping
income tax cuts and instead using the revenue to restore local
government funding cuts, which have totaled $1.4 billion since Kasich
by Kevin Osborne
Think tank: EITC would help working families
A nonpartisan think tank that
advocates for poor and working class families is urging that Ohio adopt its own
version of the federal Earned Income Tax Credit (EITC).
The group, Policy Matters
Ohio, said a state version of the federal tax credit, set at 10 percent, would divert
just $210 million from Ohio’s coffers but would benefit 949,000 low-income
working families across the state. Such a credit would provide families with an average of $221
each, which Policy Matters Ohio described as “modest but helpful.”
Currently 24 states and the
District of Columbia have Earned Income Tax Credits, ranging from 3.5 percent
to 50 percent of the federal credit.
“A state EITC program enables
families to work and build assets while reducing the impact of regressive income
tax changes,” said a statement released by Policy Matters Ohio.
“A state EITC makes sense
because recent changes to the personal income tax have provided greater tax
reductions for higher-income earners than they have for lower- and
middle-income families,” the statement continued.
The federal EITC is a refundable tax credit for low- and
medium-income individuals and couples, and is considered the nation’s largest
poverty relief program. When the credit exceeds the amount of taxes owed, it
results in a tax refund to those who qualify and claim the credit.
To qualify for the EITC, a recipient
must have earned income of $49,000 or less. The credit is worth significantly
more for families with children and is refundable, which means families receive
cash refunds above their tax liability.
Created in 1975, the federal
EITC is aimed at helping lift families with children about the poverty level,
along with offsetting the burden of Social Security taxes and maintaining an
incentive for people to work.
In Ohio, 949,692 people
currently claim the federal EITC. The credit generates $2.1 billion for state
residents, and the average refund is $2,211.
Founded in 2000, Policy
Matters Ohio is a nonprofit, nonpartisan policy research organization that
seeks to create “a more prosperous, equitable, sustainable and inclusive Ohio,”
through research and policy advocacy.
Based in Cleveland and
Columbus, the organization is funded primarily through grants from groups like
the Ford Foundation, the Sisters of Charity Foundation, the Center on Budget
and Policy Priorities, the Corp. for Enterprise Development and others.