Earned Income Tax Credit Faces A Cut In Connecticut Budget Proposals
Advocates for the state's low income families say budget proposals to cut the earned income tax credit, or EITC, will have a negative effect on the economy and make the tax code less fair.
Connecticut has had an EITC since 2011. The theory behind it is this: low-income families who work pay a much higher percentage of their income in things like social security, Medicare, sales, and property taxes than high-income earners.
This can sometimes mean that taking a job instead of relying on state assistance actually lowers your income.
The state program, combined with a similar federal credit, is designed to offset this effect, and make working -- even at a low wage job -- financially more attractive. It's fully refundable, so even if you owe no income tax, you can still claim the full amount.
"It’s one of the most effective anti-poverty policies in the U.S.,” said Derek Thomas of Connecticut Voices for Children.
He said 200,000 families in Connecticut receive the EITC. Typically the recipient will be a person earning about $18,500 dollars a year. They’ll be eligible to get a credit of $565 from the state, and even more under the federal EITC.
In the time since it was enacted, the EITC has boosted nearly 7,000 people above the poverty line.
But all three budget proposals currently on the table -- from the governor, as well as Democratic and Republican legislators -- would cut back the credit. The Republicans’ proposal makes it non-refundable, meaning if you owe no income tax, you don’t get it. That effectively would all but end the program.
"Now is absolutely the wrong time to be cutting the earned income tax credit. It's all the more important at a time when child poverty remains high and low wage work is more prevalent," Thomas told WNPR.
In fact, the share of jobs available in low wage industries in Connecticut has risen by 20 percent in the last 15 years in Connecticut, while the share of high wage jobs has fallen by 13 percent. Thomas said while his organization understands that the state faces a big financial crisis, what he doesn't get is how the governor can, in the same document, propose easing the estate tax.
"Simply put, it's a tax break worth an average of $100,000 for some 600 families, at the same time as they're cutting the earned income tax credit -- so that doesn’t look like shared sacrifice to us,” he said.
One effect of cutting back the EITC is that there's less disposable income available for urban communities. It’s estimated that the credit pumps $10 million into Hartford's economy alone.