Both the Massachusetts Senate and Governor Charlie Baker want to put more money in the pockets of low-income workers. But they can’t agree on where that money would come from.
Back in March, the governor proposed a kind of swap. To help those workers in Massachusetts who are earning too little to support themselves or their families, he recommended expanding the state’s earned income tax credit, also called the EITC. To pay for it, he’d eliminate a separate tax break for the film industry.
Last week, the Senate countered. The senators, too, want to expand the EITC, but they would get the money by blocking automatic tax cuts scheduled to take effect in coming years.
If this divide can be overcome, a more generous EITC really would make a difference in the lives of Massachusetts’ working poor. Not only has the EITC been shown to help recipients, it also helps their children, who end up doing better in school and earning more throughout their lives.
What’s the EITC?
It’s a program that gives money to low-income workers, and it’s designed to provide the most generous support to single mothers and other parents.
Most of the benefits of the EITC are paid out by the federal government, but some states — including Massachusetts — piggyback on the federal program. Effectively, the states create a kind of matching grant, paying out extra cash ($15 in Massachusetts) for every $100 in federal money.
The reason it’s called a tax credit is because it’s organized through the tax system. When you file your taxes, you can claim the EITC as a refund. That makes it different from other programs, like food stamps, which provide a monthly benefit.
Does the EITC make a difference?
Yes. Research from academics and various think tanks has demonstrated the short- and long-term benefits of the EITC. Perhaps most important, it gets people into jobs. You can’t qualify if you don’t work, which turns out to be a very strong incentive. And once people have jobs, they tend to earn more money each year and contribute more money to Social Security — which helps later on.
Children benefit, too. Children whose parents get the EITC tend to perform better in school, graduate from high school at higher rates, go to college more consistently, and earn more during their adult lives. These findings come from a range of different studies; the Center on Budget and Policy Priorities has put together a thorough review of the available evidence.
Perhaps the simplest way to think about the benefits of the EITC is to remember that poverty has baleful effects on the health and well-being of kids and adults alike, and many EITC recipients live at or near the poverty line. The extra dollars provided by the EITC help to mitigate some of those problems.
How many people get the EITC?
Across the country, more than one of every five households gets money through the EITC. That includes more than 400,000 tax filers in Massachusetts, according to an analysis by the Massachusetts Budget and Policy Center.
The average recipient in Massachusetts will get about $2,400 this year, under current law. That includes roughly $2,100 from the federal government and a little over $300 from Massachusetts.
Exact amounts vary quite a bit, though. Couples get more than single people, parents get more than nonparents, and payouts are set up to reward those who work more.
Are there problems with the EITC?
Eligibility is sometimes tricky to determine, because the payouts depend on so many factors. To ensure they’re requesting the proper amount, low-income families often have to rely on tax professionals, which can be expensive.
And in the end, not everyone does request the proper amount, which leads to errors and mistaken payments — some of it outright fraud, some from filing mistakes, some from underpayments.
What changes are being proposed?
Currently, Massachusetts gives recipients $15 for every $100 they get from the federal EITC program. Baker wants to make that $30, while the Senate has settled on $22.50.
The bigger difference, though, is how they would pay for it.
Although the governor has said he would raise the money by eliminating a tax break that helps film companies in Massachusetts, in fact that raises only about 60 percent of what’s needed.
The Senate plan costs less, since it’s less generous, but it’s fully paid for — and then some. Rather than eliminate the film tax credit, the Senate takes aim at a series of automatic tax cuts set to go into effect in the coming years. By blocking those cuts, the Senate plan would ultimately save the state several hundred million dollars, a portion of which would fund the EITC expansion.
Another chunk of those savings would be used to increase the state’s personal deduction, effectively allowing people to shield more of their money from income taxes. That, too, would be particularly helpful for low- and middle-income taxpayers.
What happens next?
A lot hinges on what happens in the House. For the moment, state representatives seem to be opposed to both plans. They think the Senate overstepped its authority when it proposed blocking automatic tax cuts. At the same time, Speaker Robert DeLeo has expressed support for the film tax credit, suggesting he’s not eager to eliminate that either.