Thousands of Kentuckians’ dreams of a more financially-secure future grew one step closer to reality last Friday with the introduction of SB 155. Senate Bill 155, introduced by Senator Morgan McGarvey and six co-sponsors, would enact a refundable state Earned Income Credit in the Commonwealth. Should the measure pass, Kentucky would be the 25th state to enact a state Earned Income Credit.
SB 155 would piggyback on the federal Earned Income Credit. The federal credit was instituted in 1975 to encourage and reward work by offsetting the cost of federal payroll taxes for low-income families. It was expanded in the early 1990s to ensure full-time workers earning the minimum wage would not have to live in poverty. The Earned Income Credit has become one of the most effective programs at lifting children and families out of poverty. A state Earned Income Credit, as outlined in SB 155, can only be claimed by people who earn income through work, and the credit is structured to encourage people to work more hours.
While the governor included a state Earned Income Credit in his “Kentucky Competes” tax reform plan, SB 155 differs in two ways. First, it decouples the Earned Income Credit from comprehensive tax reform. Whereas tax reform will likely involve long debates on both sides of the aisle, a state Earned Income Credit is largely just common sense; the credit has a long history of bipartisan support—both President Reagan and President Obama have praised its ability to encourage work and reduce poverty. Considering the Earned Income Credit as a standalone piece allows legislators in both chambers and on both sides of the aisle to take a step in the right direction regardless of their stance on comprehensive tax reform. Second, Senator McGarvey’s bill calls for a Kentucky Earned Income Credit set at a higher percentage of the federal version than does the governor’s plan. In today’s economic climate, SB 155 would do more to help these families make ends meet.
Over 410,000 Kentucky residents claim the federal Earned Income Credit and would thus be eligible to receive a state credit.
These are hardworking families, but even full-time employment is no longer a guarantee of financial stability. Many Kentucky families rely on the federal Earned Income Credit to close the gap between what they earn and what it takes to get by. In Kentucky alone, the federal credit lifts 60,000 children a year above the poverty line. A state Earned Income Credit would further encourage work and reduce poverty.
In addition to working families, passage of SB 155 would mean increased support for local businesses and economies. Because families tend to make purchases locally, the cash infusion provided by state and federal Earned Income Credits is pumped directly back into the local economy. Everybody wins when locally economies are stimulated—those who receive the credit directly as well as those who enjoy the indirect benefit of a stronger economy and a more financially independent population.
Senator McGarvey and his co-sponsors have submitted a bill that could have an immediate and profound impact on low- and moderate-income working families. Please ask your senator to support SB 155 as an important step toward a stronger Kentucky economy.