Public Assets Institute > Policy Areas > Family Economic Security > Rejecting False Choices to Protect Vermont’s EITC

Rejecting False Choices to Protect Vermont’s EITC

By Jack Hoffman. This piece first appeared October 29, 2013 in Spotlight on Poverty and Opportunity

In two short sentences earlier this year, Vermont Governor Peter Shumlin turned high hopes into bitter disappointment. During the governor’s second inaugural address, optimism rose with his bold announcement that he would “make the largest single investment in early childhood education in Vermont’s history.” But elation was quickly deflated when in the next breath he explained that his plan to dramatically increase child care subsidies for low-income families would be funded with an equally dramatic cut in the state earned income tax credit (EITC).

The proposal surprised many because, to the extent that the state EITC has been discussed at all, the tax credit has largely enjoyed broad political support. Vermont adopted its state EITC in 1988, and since the early 2000s, it has been equal to 32 percent of the federal EITC. Like the federal credit, Vermont’s has generally been seen as an efficient, effective way to fight poverty for working parents struggling in low-wage jobs. As many states grapple with how to prioritize resources, plans like Governor Shumlin’s that take funds from the poor to give to the poor strike the wrong balance. There are always more equitable alternatives.

The Shumlin Administration argued that the proposal was a fair trade-off – replacing one benefit with another – even though 44,500 families faced a deep cut in their EITC while only about 6,000 of those families stood to gain from better child care services. Although firmly controlled by the governor’s party, the legislature resisted the idea of cutting the EITC. The administration increased the pressure by insisting that the governor’s proposal was an either/or proposition: a substantial increase in child care services for low-income families, which was a top priority for the business community, children’s advocates, and many in the legislature, or a continuation of the state earned income tax credit at current levels. Even as the governor refused to consider any other source of funding to expand child care, recommending funding alternatives became an important strategy in protecting the EITC.

Advocates’ thoughtful recommendations for alternative funding eased pressure on legislators who felt boxed in on the one side by the governor, pushing for expansion of the child care subsidy, and various organizations on the other side saying: “Don’t cut the EITC!” A coalition developed balanced options to raise the additional money the governor wanted for child care without hurting those who could least afford to lose their tax credits. The alternatives focused on reducing tax breaks typically claimed by those in the upper income brackets, rather than those at the bottom. Though the governor opposed anything that smacked of a tax increase on the wealthy, legislators felt empowered knowing that they had constructive options and weren’t simply saying “no” to the administration. It is a helpful lesson learned for states facing similar battles.

In the end, the legislature wouldn’t go along with the governor’s plan, and though the fiscal year 2014 budget includes a slight rise in funding for early child care and education, it’s nothing close to the 60 percent increase the governor had recommended.

While the governor was forced to retreat on the EITC, he’s made it clear it’s only temporary. In the next legislative session, he’s expected to renew his argument that Vermont needs to “redirect” some of the money it now spends to aid low-income families.

Successfully defending the EITC in Vermont and in other states isn’t easy, and the worst part of such battles is the collateral damage perpetuated by misperceptions of low-income individuals. People have to work to qualify for the EITC; yet in this case the administration sought to portray the credit as another handout. Two weeks after the governor proposed the EITC cut, he also went after Vermont’s welfare-to-work program, Reach Up, by proposing time limits for participants. This one-two punch served to reinforce the stereotypes of people in poverty. “We don’t even know what they do with the money,” the Vermont secretary of human services said, suggesting the money was not well spent, while other legislators openly speculated about the beer, cigarettes, or snowmobiles that could be purchased with the average EITC.

In Vermont, as in other states, the challenge ahead will not just be battles over public funding, but for public perceptions as well. If Vermonters believe that recent increases in EITC claims, Reach Up rolls, food stamp recipients, and Medicaid participants mean that Vermont is too generous and anti-poverty programs are a disincentive to work, then the governor could succeed in making the cuts he wants. But if Vermonters recognize that the state needs to make smart investments in people in response to the growing need as we recover from the recession, then we can improve the well-being of Vermonters and provide opportunity for all to succeed. Indeed, it is a realization that would benefit states across the nation.

Posted by Jack Hoffman on October 31, 2013 at 1:37 pm

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