This tax credit works

Los Angeles Times - - OPINION -

The earned in­come tax credit has en­joyed four decades of bi­par­ti­san sup­port be­cause it helps work­ing peo­ple at the bot­tom of the eco­nomic lad­der climb up a few rungs. In their zeal to bring the fed­eral bud­get into bal­ance with­out rais­ing taxes on peo­ple with means, how­ever, con­gres­sional Repub­li­cans have pro­posed to shrink the fed­eral credit in 2018. Democrats in the Cal­i­for­nia Leg­is­la­ture, mean­while, want to cre­ate a state ver­sion. The lat­ter is a good idea, if done the right way. The for­mer is a step in the wrong di­rec­tion.

The idea be­hind the credit is to sup­ple­ment low-wage work­ers’ in­comes with a tax re­fund that, in many cases, is greater than the amount with­held from their checks. The credit has en­abled mil­lions to move off public as­sis­tance and has been par­tic­u­larly help­ful to sin­gle moth­ers shift­ing from wel­fare to work. That’s true in part be­cause the credit is sig­nif­i­cantly larger for work­ers with chil­dren — up to $6,242 per year for a fam­ily with three or more — than for child­less adults — up to $503. The ap­proach has been so suc­cess­ful that both Pres­i­dent Obama and House Repub­li­cans (in the bud­get res­o­lu­tion passed last year) have called for in­creas­ing the credit for work­ers with­out chil­dren

Repub­li­cans have since dropped that idea and are propos­ing to let an in­crease in the credit for mar­ried cou­ples and for fam­i­lies with three or more chil­dren ex­pire at the end of 2017 as part of their 10-year plans to elim­i­nate the deficit. Congress en­acted the in­crease as part of the 2009 eco­nomic stim­u­lus and has ex­tended it twice since then. The cool­ing GOP sup­port for the credit re­flects the split in con­ser­va­tive ranks be­tween those such as for­mer House Bud­get Com­mit­tee Chair­man Paul D. Ryan (R-Wis.), who see the credit as a help­ful anti-poverty tool, and those who con­sider it an ef­fort by Democrats to buy the sup­port of low-in­come Amer­i­cans. But rolling back the credit would be coun­ter­pro­duc­tive if it re­duces the work in­cen­tive for mar­ried cou­ples and larger fam­i­lies.

For its part, the Cal­i­for­nia Leg­is­la­ture is con­sid­er­ing whether to cre­ate a state earned in­come tax credit, as 21 states have done. Law­mak­ers have floated such pro­pos­als for 15 years to no avail; the lat­est ef­fort is by As­sem­bly­man Mark Stone (D-Scotts Val­ley), whose bill would cre­ate a credit rang­ing from 60% of the fed­eral amount (for child­less adults) to 15% (for par­ents with­out young chil­dren). That ap­proach is ex­pen­sive, though — Stone’s of­fice es­ti­mated the an­nual cost at more than $1.4 bil­lion — and for many low-wage work­ers, the aid would be too small to make a dif­fer­ence. The Leg­isla­tive An­a­lyst’s Of­fice has laid out an at­trac­tive al­ter­na­tive, which would be to pro­vide a larger credit to fewer peo­ple, such as work­ers with the low­est in­comes or child­less adults whose fed­eral credit is min­i­mal. Con­sid­er­ing where Congress is head­ing on the fed­eral credit, state law­mak­ers should an­swer Stone’s call and move ahead now to cre­ate their own.

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