The State Earned Income Tax Credit: R.I.P?

(How Trumpism might play out in Massachusetts. One of a probably lengthy series.) 

Governor Charlie Baker, back from a meeting of the Republican Governors Association, held a press conference yesterday to offer his first extended remarks after the presidential election.

If, like Attorney General Maura Healey, you were hoping for a forceful denunciation of the presence of a white nationalist in the West Wing, you were disappointed: Governor Baker is willing to hold the record open for more evidence against Steve Bannon before issuing a judgment.  On most other subjects Baker took refuge in the comforting words of Mike Pence (!), who called for a “very deliberate and significant dialogue,” yada-yada.

Baker’s strategy of not confronting the President-elect was, if not courageous, probably fiscally prudent. After all, more than one-quarter of revenue for the state’s annual budget ($39 billion this year) comes from federal reimbursements. Much of that federal funding supports our universal health care plan. That health care money was on a track to expire, but fortunately four days before the election, the Baker administration secured a commitment from the Obama administration to provide nearly $60 billion over the next five years. Good news for sure — although it’s alarming that the feds’ promise is now reliant on a president who in the past has considered defaulting on the nation’s debt as a nifty solution to budgetary problems.

Health care is not the only program under threat from Trump administration policies. Our state Earned Income Tax Credit Program, which helps more than 400,000 families in Massachusetts who earn $50,000 or less, is, as a practical matter, in jeopardy as well. Governor Baker is a big supporter of the state EITC, and an increase to that program (the first in 16 years) was one of his first year policy successes. The state EITC program is still a modest one even with the increase (the average benefit will rise to $500 per family this year), but it’s nevertheless a step toward reducing income inequality, a disorder that Massachusetts suffers from in the extreme.

The tax overhaul that Trump is proposing is especially generous to the wealthy and especially hard on lower-income families, including those who receive the Earned Income Tax Credit. His plan would entirely eliminate the head of household filing status and the deduction for dependents, both of which help to reduce the tax burden owed by EITC families.

The Trump tax proposals, to take just one example from the Tax Policy Institute, would increase the federal tax bill of a couple with four children making $50,000 a year from $210 to $1090. That result would swallow the benefit of the family’s state EITC several times over.We’re looking, in other words, at the prospect of a state EITC program that in many cases no longer helps low-income families directly but instead simply goes to help to pay their (newly-increased) share of federal taxes. How many things are wrong with that picture?

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