Targeting Working Families for State Budget Cuts Neither Smart Nor Necessary

Facing continued budget problems due to the recession, just about every governor has proposed more spending cuts for the coming fiscal year.  Though cuts are needed to help states close their budget holes, some cuts make less sense than others.

Case in point:  state Earned Income Tax Credits, which help millions of low-income working families in 24 states make ends meet.  EITCs have a strong, proven track record of reducing poverty and encouraging work, so ever since the first state enacted an EITC in the late 1980s, EITC cuts have been extremely rare.  Unfortunately, this may be changing:

• Wisconsin Governor Scott Walker is proposing to raise taxes on working families by cutting the state’s EITC, even as he proposes reducing taxes for corporations.  The EITC cut would more than double the tax bill for a single working parent with two kids and earnings of $25,000, from $193 to $394.

• Michigan Governor Rick Snyder is seeking an even larger tax increase on working families by eliminating his state’s EITC entirely.  That would push 14,000 children into poverty and reduce incomes for another 800,000 working families and individuals.

Such actions are counterproductive.  As my colleague Arloc Sherman wrote earlier this week, poverty among young children tends to shrink their earnings as adults.  That, in turn, reduces a state’s future productivity and weakens its tax base.  In other words, a state that needlessly increases child poverty does so at the expense of its own future prosperity.

Fortunately, states don’t have to cut their EITCs.  Governors from Maine to Oregon and from Minnesota to Louisiana are preserving their EITCs even in the face of major budgetary challenges.

Moreover, in Virginia last month, Governor Bob McDonnell signed legislation that strengthens the state’s EITC by ensuring that it conforms fully with EITC improvements enacted at the federal level.  McDonnell’s action costs the state $6 million, but it’s a well-spent $6 million that will benefit 114,000 Virginia children and families.

And in Connecticut, Governor Dan Malloy last month proposed creating a state EITC.

States have tough choices to make in these difficult times, but they do have choices.  Raising taxes on working families, whether to balance the budget or offset the cost of giving more tax breaks to business, is the wrong way to build for a better future.