Governor proposes tax increase on the working poor
Gov. Peter Shumlin drew cheers and then sighs in Montpelier last week when he called for a major expansion of child care subsidies for Vermont families but proposed paying for the expansion by cutting earned income tax credits for working families. About 44,000 families qualified for the Vermont earned income credit in 2011 and would pay higher taxes if the Legislature approves the governor’s proposal.
The Earned Income Tax Credit is a federal tax credit aimed at helping working families, and Vermont has had a state earned income credit for 25 years. The Vermont credit is piggy-backed to the federal credit: working Vermonters who qualify get a credit against their state income taxes equal to 32 percent of their federal earned income credit. Both the federal credit and the state credit are refundable, which means that families can get money back if their credit is more than what they owe in income taxes.
The Earned Income Tax Credit, or EITC, is widely viewed as one of the country’s most effective anti-poverty tools. Research has shown how it has benefited children, single mothers, the economy, and employment.
A new study released by the Brookings Institution last Friday, the day after the governor made his proposal, showed that the federal EITC and federal Child Tax Credit helped to keep more than 13,500 Vermonters out of poverty—half of them children. Vermont has seen a sharp spike in the number of young children in poverty in the last few years. Without the EITC, according to the Brookings report, another 4,000 Vermont children would have been below the poverty line.
The Brookings study was only looking at the effects of the federal earned income credit, and the governor’s proposal would not affect Vermonters’ federal credits. But the state earned income credits have the same strengths as the federal credits. They provide support for people who are working, but for wages that are too low to make ends meet.
Vermont’s earned income credit was estimated to reduce income taxes for qualified, working families by $28 million in fiscal 2012. The governor’s proposal would reduce the credit—and therefore increase taxes—on these families by $17 million and use the money to expand child care subsidies.
This is Bad economic policy! We need progressive taxion Not Regressive! Raise Taxes on the wealthy by 500 million
Could we have an example of how the EITC has helped a sample family or two? I think that most people need a concrete example in order to form a clearer idea of how painful the withdrawal of some of the EITC can be in real life.
Some other questions whose answers would provide a clearer picture of what is at stake: Are there restrictions on how the money retained under the EITC plan is used now, or can families use it to pay for child care now. Do we have any figures showing how much poor families are already paying out in child care costs? Because of the large share of state EITC funds that would be diverted, can we say that poor families without children will be penalized?
With thanks
[…] But he was wrong when he proposed to fund an expansion of child care for working families through higher taxes on Vermont’s lowest-wage workers. That would only exacerbate inequality and, as Stiglitz explains, weaken the economy the governor […]