Within Our Grasp: Reducing Economic Insecurity with a State EITC Elizabeth Paulhus

Within Our Grasp: Reducing Economic Insecurity with a State

EITC

Elizabeth [email protected]

Presentation at the Asset Building SummitOctober 29, 2010

I. Why do we need a state EITC?

II. A tale of two credits

III. Funding a state EITC with TANF dollars

Outline

Wage stagnation and rising cost of basic needs

Real Wages

Trans-portation

Food Shelter Gas Utili-ties

Medical Care

-4%

150% 160%188%

251%

438%Percent Change from 1979 to 2009, West Virginia

Source. Bureau of Labor Statistics. Data from the Consumer Price Index - All Urban Consumers, South Urban region.

Regressive Tax Structure

Lowest 20%

Second 20%

Middle 20%

Fourth 20%

Next 15% Next 4% Top 1%-2%

0%

2%

4%

6%

8%

10%

12%

Income TaxesProperty TaxesSales & Excise TaxesFederal Deduction Offset

9.7%8.5%

7.3% 6.5

%

9.3%

9.3%

9.0%

Source. Institute on Taxation and Economic Policy. (2009). Who Pays? A Distributional Analysis of the Tax System in all 50 States.

Significant work incentive – makes work more financially attractive option

Has helped increase employment among low-income workers

Offers crucial work support to families

Benefits of a state EITC

Credit Swap

10% State EITC

Family Tax Credit

Refundable Yes No

Number of Tax Filers

Est. 151,000 75,938

Maximum income eligibility

244% FPL 125% FPL

Cost $28 million $17 million

Comparing state EITC with FTC

50 2,950 5,850 8,750 11,65014,55017,45020,35023,25026,15029,05031,95034,85037,750

-400

-200

0

200

400

600

800

1000

1200

State Tax Without Any Credit

Tax Liability with FTC

Tax Liability with 10% EITC

Income ($)

State IncomeTax Liability ($)

Married, Two Children

States can count the refundable portion of the state EITC as a qualified expenditure

for TANF.

16 states and D.C. currently use TANF funds to cover part of their state EITC.

West Virginia historically has had a large unobligated balance in TANF.

Funding a state EITC using TANF

What are unobligated funds?

Total TANF Funds WV TANF Expenditures Unspent Funds0

20

40

60

80

100

120

140

160

110 (federal)

34.4 (state)

126

18.4

(in millions of dollars)

The History of our Unobligated Balance

A refundable 10 percent state EITC can play a vital role in addressing the growing

economic insecurity of many West Virginia families.

By using money from the TANF unobligated balance, West Virginia can fund an

important investment that has benefits both today and in the future.

Final Thoughts

The West Virginia Center on Budget and Policy encourages you to reproduce and distribute these slides, which were developed for

use in making public presentations.

If you reproduce these slides, please give appropriate credit to WVCBP.

The data presented here may become outdated.

For the most recent information or to sign up for our free E-Mail Updates, visit www.wvpolicy.org

West Virginia Center on Budget and Policy723 Kanawha Blvd, Suite 300

Charleston, WV 25301(P) 304.720.8682 (F) 304.720.9696

Use of this Presentation