Strengthening and Modernizing the California EITC to Fight Poverty, Inequality, and the Rising Cost of Living

The steep and rising cost of living and housing, coupled with stagnating incomes, means too many families in California aren’t feeling the prosperous economy. Many people live on the financial brink, as the cost of middle-class life has dramatically increased—from housing to childcare to medical costs—while wages lag behind.

At the same time, income inequality is at a peak, and is worse in California than in most other states:  CA claims both the greatest number of billionaires and the highest poverty rate in the nation. This dramatic disparity is on display in every corner of our state, and our current tax system exacerbates both of these problems -- many low-income people pay more of their income in state and local taxes than most other taxpayers, according to Institute for Taxation and Economic Policy data.

As a simple and effective approach to fight rising economic inequality and financial instability, we need to put more money back in the pockets of the working and middle-class people who need it most. California should do this by modernizing and expanding the CalEITC with a Cost-of-Living Refund.

We’ve worked for years alongside partners on how we might modernize and expand the state’s Earned Income Tax Credit to do just that:  put money back into the pockets of Californians. The policy details are in a white paper that we’re releasing today.

The white paper, “Strengthening and Modernizing the California EITC to Fight Poverty, Inequality, and the Rising Cost of Living,” lays out a vision and sets a clear course for achieving a more affordable and accessible California. We could build upon the existing CalEITC with these modernizations:

• Expand the current CalEITC to reach further up the income scale to help Californians who are working while struggling to keep up with the state's rising cost of living;

• Expand the definition of work by including unpaid family caregivers and students; and

• Create an option to receive the benefit monthly so people feel it working in their lives.

California’s affordability challenge is formidable. It will take bold action and a sustained commitment over time to create a California where all can thrive. In the coming weeks the new Governor and state lawmakers will be determining their priorities for the year.

We believe an affordability agenda must be a top priority, and the new Governor and state leaders are poised to lead on policy to benefit millions of hard-working Californians by expanding and modernizing the CalEITC to become the most ambitious in the nation.

Lead the way, California.

New poll: Voters back Working Families Tax Credit

Economic Security Project has conducted wide-ranging opinion research over the past two years in developing the Working Families Tax Credit. Our latest national survey, conducted by YouGov, shows the strength of the policy. Overall, it garners 72% support from voters, including 90% support among Democrats, 69% among Independents, and 57% among Republicans.

New poll: Tax credits for workers vs more tax cuts

We wanted to test our hypothesis that putting money back in working and middle class people's pockets would be a powerful message in opposition to more tax cuts benefiting the wealthy and corporations. (Though there has been conflicting reporting, Ways & Means chair Brady said today he'd start moving legislation next week.)

We did a 1000-sample national poll last week testing a known effective message opposing tax cuts 2.0 (an Americans for Tax Fairness message) with two endings talking about restoring a fairer tax code, one saying we should invest in infrastructure and other needs for our families and communities, and one that ends:

"Instead, the rich and big corporations should pay their share of taxes and we should invest in expanded tax credits for working families–real economic relief for working and middle-class Americans who can’t keep up with the rising cost of living and housing."

The message on tax credits for working and middle-class people boosts support by 16 points: +9 among Independents, +15 among Democrats,  and +24 among Republicans.

This polling data is here.

Talking points: Tax reform for working and middle-class families

 

• Current tax reform efforts only benefit the wealthy: The Republicans’ tax scam for the rich recklessly drives up the deficit to justify their cuts to Social Security and Medicare. Now they are coming back for even more huge additional tax cuts for wealthy campaign donors and corporations, giving another massive windfall to the richest Americans. [This language comes from Americans for Tax Fairness]

• Instead, the rich and big corporations should pay their share of taxes and we should invest in expanded tax credits for working families—real tax reform for working and middle-class Americans who can’t keep up with the rising cost of living and housing.

• The cost of living and housing is climbing steadily and wages aren’t keeping up. That not only hurts people who are struggling in poverty, but also squeezes millions of middle-class families – people who live paycheck to paycheck and are one car accident or unexpected medical bill away from financial disaster.

• We should reform the tax code to make it fair and give poor and middle-class people much-needed economic relief through tax credits for working families.

1. We should massively expand the Earned Income Tax Credit (EITC) by making it available to younger workers, middle-class workers up to $75,000 of income, and workers without dependent children. The GAIN Act, introduced by Rep. Ro Khanna (CA) roughly doubles the EITC for working families, and complements an increased minimum wage so no one who works full-time lives in poverty. Similarly, the EITC expansion bill by Rep. Richard Neal (MA) would essentially ensure that the federal tax code doesn’t tax childless wage-earners aged 21 through 64 into poverty.

   • The Earned Income Tax Credit is a benefit for low to moderate-income workers and couples, with an increased amount for those with children. Since it began in 1975, the EITC has become one of the country's leading anti-poverty programs, pulling more people out of poverty than SNAP and housing subsidies combined.

2. We should also modernize the EITC in a number of ways, making it available to people who are giving back to society in other ways, including family caregivers and students. Additionally, a monthly option for the EITC would give recipients a regular drumbeat of financial stability. These provisions are in the EITC Modernization Act introduced by Rep. Bonnie Watson Coleman (NJ).

3. Finally, we should expand the Child Tax Credit (CTC) to help millions of struggling families with children.  For example, Rep. Rosa DeLauro’s (CT) Child Tax Credit Improvement Act would index the value of the Child Tax Credit with inflation and increase the value of the credit for families with young children under age 6.

   • The most recent Census report on the Supplemental Poverty Measure showed that refundable tax credits, specifically the Child Tax Credit and the Earned Income Tax Credit, do more to lift children out of poverty than any other federal policy. Increasing the value of the Child Tax Credit for families with a child under the age of six has the potential to positively impact a child’s health, education, and future.

• All together, these working families tax credits will provide a ladder out of poverty and a cushion of financial stability to help hard-working Americans get ahead. At the same time, they will fight rising inequality that threatens our democracy, and make taxes fairer so that the wealthiest pay their share and working families can thrive.

A break for hard-working Americans instead of more corporate welfare

While the recent tax cuts were billed as relief to the middle class, ample evidence has shown that the benefits flowed almost exclusively to those at the very top. A new ITEP analysis of the cuts, alongside previous tax cuts by Presidents Bush and Obama, highlights the extent to which the federal tax code is shifting more and more to benefit the wealthiest in our country at the expense of working people: Since 2000, more tax cuts have gone to the top 1% than to the bottom 60% of Americans.

This highlights the importance of fixing the tax code and making it fairer. As economic inequality grows and prices continue to rise faster than wages, the need becomes even more urgent to build an economy that works for most Americans — instead of an elite few who have rigged the system to keep the lion’s share of rewards for themselves.

Simply put, to end poverty and rebuild the middle class, we need to put more money in the pockets of hard-working Americans. New data explored here show the political appeal of this idea.

A Working Families Tax Credit is immensely popular among 2020 Democratic primary voters: 74% support (52% strong support), 14% opposed.

THE WORKING FAMILIES TAX CREDIT

The Working Families Tax Credit, established by modernizing and expanding the state Earned Income Tax Credit (EITC), is a powerful and practical plan to provide relief to the tens of millions of Americans who are struggling in poverty or live one bad break away from the financial brink.

On the merits, there is no simpler or better-tested policy to provide economic stability to working and middle-class people. The existing EITC already lifts more families out of poverty than food stamps, housing subsidies, and unemployment insurance combined, because cash gives people the tools to solve their own problems.

The Working Families Tax Credit will help working people face the rising cost of living and housing, with a leg up out of poverty or a cushion of financial stability.

The Working Families Tax Credit is a simple and effective policy to provide meaningful economic relief to Americans today. It will:

• Help working people face the rising cost of living and housing, with a leg up out of poverty or a cushion of financial stability.
• Fight rising inequality that threatens our democracy.
• Make taxes fairer, so the wealthiest pay their fair share.
• Build on a high minimum wage, so workers earn enough to live.

Much more ambitious than a typical, incremental expansion of the EITC, this proposal pushes up the income ceiling to cover not only those in poverty but those living on the brink in the lower middle-class. It offers a much more generous credit than the traditional EITC, from which many recipients receive only a modest benefit.

Importantly, it expands the definition of work to include those who are giving back to society in other ways, even if they have zero income — family caregivers and full-time students. And it creates an option to receive the credit monthly, to keep people from falling into debt as the year goes on: a regular drumbeat of financial stability in people’s checking accounts. It is paid for by raising taxes only on income above $250,000.

Read more details about the policy at www.WorkingFamiliesTaxCredit.org.

A POPULAR PROGRESSIVE IDEA FOR 2020

A new poll looks at the popularity of a Working Families Tax Credit among likely 2020 Democratic primary voters. The idea of a tax break for working and middle class families funded by a tax increase on the wealthiest is immensely popular: 74% support (a striking 52% expressing strong support), with only 14% opposed.

Support remains very high after pro and con arguments (65% support, 15% opposed), and 63% of primary voters are more likely to support a candidate who backs this policy.

Previous polling shows that the idea is popular across the board, winning 69% support in national polling, with majority support from voters of all political parties. Less likely voters, who would be important turnout targets in 2018 and 2020, are nine points more enthusiastic than definite voters, giving them another reason to turn out on Election Day.

It has been reported that the Trump administration will push another round of tax cuts, perhaps as soon as this fall, seeking to make permanent the individual tax cuts that disproportionately benefit the wealthiest. Perhaps members of Congress looking to oppose those additional cuts and to reverse the previous tax cuts on the wealthy should make the case against cuts that offer an outsized benefit to those already thriving, and then pivot to a message that talks about real tax breaks for working and middle-class families through a Working Families Tax Credit.

The popularity of the Working Families Tax Credit creates a potential opportunity for 2020 as a bold new idea that excites voters seeking a progressive economic vision, alongside ideas like Fight for $15, debt-free college, and Medicare for All. The Working Families Tax Credit is an idea that should be considered as part of a comprehensive package of economic policies that will draw enthusiasm at the polling booth and relief for the pocketbooks of millions of Americans.

Robert Reich on expanding the EITC

Former Labor Secretary Robert Reich is quoted in The Wilderness podcast making the case for expanding the earned income tax credit:

“Undoubtedly, artificial intelligence and related technologies are wiping away many good jobs. They will wipe away many middle class jobs over the next 20 years. Some people will have the right education and be at the right place and have the right connections to ride the wave of technology into fabulous jobs, but we’re talking about a very small segment of the American population. So the question then becomes, what do we do to provide a foundation of economic security under the vast majority of Americans?

“Number one, you expand the earned income tax credit, which is a wage subsidy essentially. It’s already the largest anti-poverty program in the U.S. It can be and should be enlarged.”

Fast Company: Chris Hughes Got Lucky With Facebook, Now He Wants Everyone To Have A Shot

”Hughes proposes giving everyone earning less than $50,000 a year an extra $500 a month, provided they are working in some way. That includes not only people with jobs in the classic sense, but also freelancers and contractors on less stable incomes. It also includes people bringing up kids or looking after “dependents,” who are often excluded from poverty-reduction discussions, but who arguably do as much work as anyone. A family of four on $38,000 a year would, therefore, see their income bumped up to $50,000. About 90 million Americans in total would benefit.

“‘The guaranteed income would create a floor below which people could not fall, a reliable foundation for people to build on,’ Hughes writes. ‘It wouldn’t be enough money on its own for anyone to live on. It would be supplement income from other sources like formal labor, a job in the gig economy, informal work, or other government benefits.’”