The Shriver Brief : Poverty Law Commentary & Insights : Sargent Shriver National Center on Poverty Law : Affordable Housing, Healthcare Reform

The Illinois General Assembly got it right when it voted in December to double the state’s earned income tax credit (EITC). As the 2012 tax season approaches, low-income taxpayers in Illinois will receive, on average, $100 extra per year.

The EITC is a refundable income tax credit, which is available to low-income families on their federal income taxes. The American Recovery and Reinvestment Act (ARRA) provided a temporary increase in EITC and expanded the credit for workers with three or more qualifying children for the 2009 and 2010 tax years. Many states also provide a state EITC, usually based on a percentage of the federal credit. Previously, Illinois had one the smallest EITCs among all the states at only 5% of the federal EITC.

In 2010, 46 million Americans lived in poverty, the highest number in our country’s history. The EITC, the government’s largest anti-poverty program, has been credited with lifting millions of people out of poverty. In fact, when President Reagan signed the federal EITC into law, he called it “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” In Illinois, for example, over 950,000 families benefited from the EITC in 2010, and experts estimate that number will climb to 1 million this year due to the economic downturn.  

We commend Illinois and Governor Quinn for taking such concrete steps by increasing the EITC. Unfortunately other states are not being so wise. Oklahoma, Indiana, Kansas, and others are proposing legislation to eliminate the EITC, while Michigan is attempting to reduce the program by 70%.

Oklahoma, for instance, has created a tax task force that has recommended that the state abolish personal income taxes all together, along with the EITC. If this tax package passes, 67% of Oklahoma’s citizens will pay higher taxes, and the 80% who rely on EITC refunds for a boost at tax time won’t receive them. Abolishing the personal income tax would further impoverish these families since sales and use taxes or other taxes might be increased to cover this lost tax revenue.

A similar story is unfolding in Indiana, where the EITC has proven to be a successful measure in stabilizing the incomes of nearly 500,000 low-income working Hoosiers who have felt the devastating affects of increased poverty and decreased wages as a result of the Great Recession. In Kansas, Governor Sam Brownback claims that fraud is the reason to eliminate the EITC; however advocates and legislators strongly disagree. Without this tax credit, 4,000 more Kansas children will live under the poverty line, and families will be denied the $90 million in credits. The result would be devastating for these families and children.

The EITC is beneficial not only because it puts extra money in the pockets of those in need, but also because it includes work incentives, grows the economy and can help lift families out of poverty. The country has not yet recovered from the recession’s economic fallout, and now is not the time to cut such vital support for the most vulnerable populations.

EITC Awareness Day is today, January 27, 2012. This is a national, grassroots effort spotlighting this potentially life-changing tax credit. Join with other charitable organizations, elected officials, state and local governments, employers, and other interested parties to educate your communities about the EITC, encourage those who are eligible to apply for it, and prevent it from being cut.  

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In this era of justified public cynicism about our political process, let’s give the politicians credit when they get it right. The Illinois General Assembly got it right last week when it voted to double the state’s earned income tax credit (EITC) as part of the tax package. Governor Quinn got it right when he insisted on this.

The EITC, a refundable tax credit to low- and middle-income workers, is critical for achieving tax fairness. It is also one of the best ways to stimulate economic growth and job creation. Given the anemic performance of our economy, nothing is more important than that.

The EITC is a cost effective way to stimulate economic growth and job creation because businesses grow and hire new workers when they see increased demand for their products. Wealthy people, given an extra dollar, are likely to save it, while low- and middle-income people are much more likely to spend it. This spending increases demand, spurs economic growth, and creates jobs. That’s why the non-partisan Congressional Budget Office estimates that providing refundable tax credits like the EITC for low- and middle-income households creates two to three times more jobs and economic growth than extending the Bush II tax cuts.

Increasing the EITC also makes our tax system fairer. Over the past 30 years, the wealthiest 20% of Americans have seen their income grow by 95% compared to only 25% for everyone else. For the wealthiest 1%, it’s even more dramatic—their income has grown by 281%, and they’ve gotten 58 cents of every dollar of economic growth generated over the past 30 years.

The last thing our tax system should do is make income inequality worse. But due to our over-reliance on sales taxes and other factors, low-income people in Illinois spend over 13% of their income on state and local taxes, while upper income people spend less than 6%% of theirs. Increasing the EITC helps redress this imbalance.

It is unconscionable that nearly 100,000 people in Illinois who work full-time, year-round still live in poverty. The EITC is a cost-efficient way to encourage work and help these and other low-income workers make ends meet. It also lifts more children out of poverty than any other tool.

Now that CME and Sears have demonstrated that holding a gun to the politicians’ heads works, we can expect a parade of “too big to leave” companies to visit Springfield with their hands out. Maybe some, unlike CME, will say thank you and promise not to take the money and run. We can also expect a new round of across-the-board corporate tax giveaway proposals. Perhaps the taxpayers will even be asked to subsidize multi-millionaires directly, such as by the increase in the estate tax exemption included in this week’s tax package.

The important thing to remember, though, is that George Bush I was right when he called this voodoo economics. The EITC is not just about fairness, lifting full-time workers and children out of poverty, and reversing the 30-year trend of greater income inequality. It’s also about tax policy that will lead businesses to grow, create jobs, and make the economy work for all of us.

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