Lawmakers, responding to recession signals, have made stimulating the economy a central theme of this year's budget negotiations. Gov. M. Jodi Rell and the General Assembly should make a state earned income tax credit one of those stimulants.
Twenty-two other states and the District of Columbia have EITCs that piggyback onto the federal earned income tax credit. The credits are refunds for low-wage workers on income and payroll taxes.
Congress created the credit in 1975 as an incentive to get the poor off public assistance and into the workforce. Those eligible for the credit range from individuals earning less than $12,000 a year to families of four who live on less than $37,000.
Studies show that the EITC has succeeded in fueling the local economy. Families typically spend their returns on necessities such as home repairs, car purchases, education and training.
Several legislative attempts over more than a decade to adopt a Connecticut earned income tax credit have unfortunately failed. Critics of the program maintain that the EITC is an expensive giveaway to people who don't pay taxes. Those critics have so far managed to scuttle a state EITC.
It is true that, depending on how much they qualify for, low-wage workers could receive federal tax refunds over and above what they contribute in income and payroll taxes throughout the year. And that most of those who are poor enough to qualify for the tax credit are unlikely to pay Connecticut's state income tax.
But critics ignore that the poor pay a larger share of their income in sales, property and excise taxes. A tax refund could go toward a down payment on a house, a used car to drive to work or paying off bills.
This year, a bipartisan group of state lawmakers has proposed an EITC program that would grant a rebate equal to 20 percent of the federal rebate. If a low-wage worker receives $1,000 from the Internal Revenue Service, for example, the state would send him another $200.
Last year, 166,000 Connecticut residents received federal credits totaling $290 million. A state program would return more than $50 million in tax rebates. IRS officials have estimated that 75 percent to 80 percent of those who are eligible receive the credit. Many of them have their taxes done for free by volunteers trained through the IRS's Volunteer Income Tax Assistance Program.
The working poor are far more likely to spend their refunds on food, heat and other necessities. With the cost of living rising so rapidly, few low-wage workers can afford to salt much money away. The earned income tax credit would stimulate the economy while helping hardworking people who need it most.
Reprinted with permission of the Hartford Courant.
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