TNT errs in opposing state tax rebate for working families

REMY TRUPIN
Last updated: March 2nd, 2008 01:28 AM (PST)

The Working Families Credit is a proven way to help lower-income families transition from poverty to full participation in the work force. The credit boosts their incomes as they increase their wages then slowly tapers off as they get close to $40,000. It is an essential component of a state strategy to support working families and complements the state’s efforts to expand access to child care, health insurance and healthy food for working families.

Thousands of families in Washington must overcome daily obstacles to make ends meet. To make matters worse, lower-income households in our state pay a higher share of their income in state and local taxes than in any other state. While Washington’s taxes are low overall, our state and local tax system is the most imbalanced in the nation, requiring lower-income households to pay nearly five times as much for government as the highest-income households as a share of income.

In addition to the inequitable state and local system, the federal income tax effectively provides a sales tax rebate for middle- and upper-income households only. They benefit from being able to deduct state and local sales taxes from their federal income taxes, while lower income households are not generally able to do so.

The Working Families Credit is an important step toward a more equitable tax structure. It would give struggling families, in essence, a chance to get back an average of 30 percent of the state and local sales and consumption taxes they have paid.

This simple and effective policy, developed by the Washington State Budget & Policy Center, builds on the success of the federal Earned Income Tax Credit (EITC). The EITC is widely recognized on a broad and bipartisan basis as a highly effective anti-poverty program; in 2003, it lifted 4.4 million people above the federal poverty line. Twenty-two states and the District of Columbia have instituted local versions as well.

By piggy-backing on the EITC, the Working Families Credit is relatively simple and inexpensive to administer. Much of the work will be done through an agreement with the IRS, which will do most of the necessary paperwork.

Every community in Washington state would benefit from the Working Families Credit. Pierce County alone would receive an estimated $7.8 million yearly when fully implemented, in addition to the $78 million already received by the federal EITC. These are dollars that can directly benefit local economies.

It’s not just urban areas that will benefit. Taxpayers in less populous areas of the state are especially likely to receive a Working Families Credit. For example, about one in seven tax filers in the second legislative district (including Roy, Eatonville and Orting) would be eligible – above the state average.

The News Tribune rightly points out that the state is facing a long-term imbalance between revenue and spending. But this is not because we think too big and invest too much. It’s because we have a crippled and inequitable revenue structure. We need to start a conversation about how to fix that, including taking a serious look at tax credits that do not have the clear benefits of a Working Families Credit.

The modest $2.4 million startup cost that the state Senate has proposed is an important investment. We as a state need to move beyond the safety net that The News Tribune rightly lauds and find innovative ways to foster a prosperous and equitable state. The Working Families Credit is a modest yet bold step in that direction.

Remy Trupin is the executive director of the Washington State Budget & Policy Center.

Originally published: March 2nd, 2008 01:28 AM (PST)