A State Earned Income Tax Credit Would Have Helped Thousands on Tax Day

Have you filed your taxes yet? I certainly hope so – as we were reminded in countless news stories and in tv commercials that April 15 (or this year, the 17th since the 15th fell on a Sunday) was the due date for taxes. As I worked through my forms, and submitted them online, I kept reflecting on the fact that I was doing my part.

My taxes fund infrastructure, programs, and services that almost every single person in the U.S. and in Kentucky rely on and use, including roads, schools, parks, traffic lights, stop signs, sidewalks, sewers,  safe milk and food, safe prescription drugs and safe work environments.

In addition to these things we all rely on – my taxes fund other programs and services. These are programs and services that while I, and many Americans don’t need now, we may need if we lose a job, have a health emergency, lose a loved one, or encounter another crises that makes it difficult to pay the bills, purchase food, and make ends meet. Some of these programs include the school lunch program, which helps school kids get at least one full meal a day; food stamps, which help struggling families pay for food; and the Earned Income Tax Credit (EITC), which has multiple benefits for families, as well as local communities.

On tax day this year, I would have liked to know that some of my tax dollars were going back to Kentucky families through a state, refundable EITC. Unfortunately, thousands of Kentucky families in need lost out because the Commonwealth has not adopted a state Earned Income Tax Credit (EITC) like 25 others states have. Thousands of Kentucky families and communities could see immediate and long term benefits, at very little cost to the state, if policymakers implemented a state EITC. Check out our issue brief on the topic, which we released on Tuesday.  We examine the federal EITC’s 30-year track record of lifting children and families out of poverty and highlight the benefits a state EITC would provide to the Commonwealth.

 

In 2008, the federal EITC put $760 million into the pockets of Kentuckians, helping working families with various occupations close the gap between what they earn and what they need to make ends meet. For example, a married Licensed Practical Nurse with two children making an average salary of about $37,300, would qualify for a Federal EITC of $1,752.

Twenty-one percent of federal individual income tax filers in Kentucky received the federal EITC in 2008. In twenty-three counties, at least 30 percent of all filers received the EITC, with as many as 39 percent in McCreary County. Even in Oldham County, the state’s wealthiest, nearly one in ten filers claimed the federal EITC.  A state EITC would further help these families make ends meet while also helping local economies.

In the brief, A State Earned Income Tax Credit Would Help Kentucky Families and Local Economies, Kentucky Youth Advocates points out several benefits of a state EITC, here are some of them:

  • An EITC return does more than help families make ends meet. Research shows that children do better in school when their families bring in more money. When a child’s standing in school improves, the chances that they will earn more as adults increases – a long term benefit for us all.
  • Many workers save a portion of their EITC for education. Whether that means a parent pursues additional education for themselves, or they can send their children to college, Kentucky businesses and the economy benefit from having a more educated and skilled workforce.
  • State and federal EITCs can also generate local economic activity. Research indicates that every $1.00 of EITC refund for taxpayers generates local economic activity worth $1.07 in Nashville; $1.40 in Fresno; $1.58 in San Antonio; and $1.67 in Michigan.
  • The state EITC is a relatively inexpensive way of helping children, families and local economies in Kentucky. An EITC calculated at 15 percent of the federal EITC would cost Kentucky an estimated $114 million and would provide an average credit of $300 to qualified families. This is just a little over one percent of budgeted 2013 spending. Because adding a state EITC only requires a few additional lines on the state tax forms, it has very low administrative costs.

At the end of this tax season, and what will soon be the end of the 2012 Kentucky General Assembly, I look forward to when Kentucky’s leaders can join the twenty-five states that have eased the state tax burden for struggling families. National leaders from Presidents Nixon and Reagan to Presidents Clinton and Obama have understood the power of the EITC, and Kentucky’s leaders should make it a priority so Kentucky’s families and local economies can prosper.

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