President Ronald Reagan, a big supporter of the Earned Income Tax Credit

In all of the major income tax proposals this year (including the plan announced yesterday by Senate Republicans), the Earned Income Tax Credit (EITC) has been targeted for elimination. That’s strange, because lawmakers have made no clear argument for why we should lose this credit. They’ve spoken about the need to end handouts to “corporate special-interests,”  but the EITC goes to low-income working families.

It’s also strange because the EITC has a long history of support from conservative leaders. For example, at the State Chamber of Oklahoma’s tax policy forum earlier this month, Arthur Laffer said he would favor a “negative income tax” that pays credits to those earning below a certain amount.

The negative income tax idea has a long conservative pedigree, beginning with Milton Friedman. According to Friedman, the most efficient and effective way to solve poverty is to give poor people money. This preserves their ability to make market choices and reduces the need for bureaucracy to run more complicated assistance programs, such as food stamps and rent subsidies. To maintain the incentive to work, the payment is reduced by a fraction for each dollar the family earns. Rising wages would eventually eliminate the credit, but not so quickly that it makes more sense to stay unemployed. Read the rest of this entry »

We’ve recently joined with CFED, a national organization dedicated to expanding economic opportunity, and the Oklahoma Asset Building Coalition, in releasing the 2009-2010 Assets and Opportunity Scorecard. Our earlier post summarized the Oklahoma results, as did several media reports.

One area where Oklahoma needs to do better is our 529 college savings plan. Section 529 of the federal tax code allows families to set aside savings in a special account overseen by the state government. Interest earnings on the account are not subject to the federal or state income tax. CFED points out that: Read the rest of this entry »