Stuart Frazier: Give low-income working families a tax break
CHARLESTON, W.Va. -- As the nation inches closer to the dreaded "fiscal cliff," much of the public's anxiety is focused on spending cuts and income tax increases that will hit middle- and upper-income households unless Congress and the president strike a deal that pulls us back from the edge.
Comparatively little attention is being paid to the harm that would befall poor and low-income Americans, including over 150,000 working West Virginians who benefit from the Earned Income Tax Credit.
Important expansions made to the EITC in 2009 are set to expire if Congress doesn't act. This would hurt families doing their best to make ends meet. For example, it would take nearly $700 out of the pocket of a single mother working full-time to raise her three children on minimum wage (about $14,500 annually). Or a military police staff sergeant in the Air Force with a spouse, three children and a base salary of $34,723 a year, would see a tax increase of over $1,100.
Tax reform in the coming year also could put the EITC on the chopping block, causing more harm to low-earning families. This is no time to take money from working families earning low-wages. Congress should maintain the credit in its current form.
Here in West Virginia, we also can do our part to support working families by implementing our own version of the federal credit. Gov. Earl Ray Tomblin has a chance in his upcoming State of the State address to embrace a state EITC and to encourage legislators to implement it in West Virginia.
Like the federal credit, a West Virginia EITC would go only to those who work. It would build on the success of the federal credit, allowing us to leverage its powerful impact and do a little more for West Virginia families who work every day but still struggle to meet basic needs.
The EITC has a proven track record of keeping families working and out of poverty, and most families use it for just a couple of years until they can get a better-paying job. It's also one of our nation's most effective tools for reducing poverty among children and has lasting effects on their well-being. The additional income from the EITC helps low-income children perform better and go farther in school, resulting in their working more and earning more as adults.
Working West Virginians -- including military veterans returning to civilian life and single moms -- face wage stagnation and rising costs for food, transportation and other basics. Our state has one of the highest shares of low-income occupations in the country: Almost a quarter of workers in the state have jobs that pay below $22,350 a year.
These families work and pay a large share of what little they earn in state and local taxes, including income, sales, and property taxes. A state EITC would let them keep a bit more of what they earn, reduce the substantial state and local taxes they pay, and help them provide for their children. It is a small investment that would have a big impact on working families.
As of Nov. 30, the West Virginia Rainy Day Fund holds a balance of $909 million. In finding the cost of a state EITC, one can take the share of the federal EITC attributed to the state ($328 million in FY 2010) and multiply it by the percentage at which the state EITC could be set (for example, 10 percent of the federal credit). So, funding a state EITC would cost $32.8 million or 3.6 percent of the healthy and rising Rainy Day Fund. Considering many people may not be aware of a state EITC for the first few years, the cost could be slightly lower due to unclaimed credits.
West Virginia would hardly be entering uncharted territory -- 25 states and the District of Columbia have their own EITC to build on a credit that produces real results for working people.
Our future hinges on the abilities and opportunities of our children and working families. The better off they are, the better off we all are.
Frazier is a policy analyst with the West Virginia Center on Budget and Policy.