State EITCs: Helping Working Families and Communities Thrive

As state legislative sessions begin, policymakers can help keep people working, increase incomes, reduce financial hardship, and build an economy that works for everyone by following the 26 states and the District of Columbia that have created state Earned Income Tax Credits (EITCs) to help working families share in our economic gains. 

Based on the federal EITC, state EITCs are a common-sense way to help working families make ends meet by eliminating some or all of their state income taxes and boosting their incomes. They build on the success of the federal EITC by helping families afford the things they need to keep working, like child care and transportation.

EITCs also help working parents better meet their children's needs.  Studies show that when low-income families get an income boost, young children in those families tend to do better and go further in school, and the greater skills they get as a result tend to raise their earnings in adulthood.  That means a stronger future economy.

State EITCs help make state tax systems fairer as well.  In almost every state, low- and moderate-income families pay more state and local taxes as a share of their income than upper-income families (see graph) because states and localities rely heavily on sales, excise, and property taxes, which fall more heavily on low-income families.  States that have increased their reliance on these taxes in recent years should consider a state EITC to address the negative impact on families with lower incomes.

Because state EITCs are well targeted to low- and moderate-income working families, the cost is more modest than other tax cuts that states often consider.  For a relatively modest investment, states can make a big difference in the lives of working families. 

Better yet, state lawmakers should pair their adoption or expansion of a state EITC with a stronger minimum wage.  As our newly updated paper explains, advancing both policies allows policymakers to reach more working people, do more for the working families in greatest need, help working families cover both daily and one-time expenses, and spread the cost of boosting working-family incomes across the public and private sectors.  Over the past couple of years, states like Maryland, Minnesota, and Rhode Island, as well as the District of Columbia, have done just that.

This post originally appeared on Off the Charts, the Center on Budget and Policy Priorities' blog.

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