In 2016, Oklahoma lawmakers were struggling to pass a state budget amid a massive revenue shortfall. Sound familiar?
One of the measures taken by lawmakers in that year to fill their shortfall was making Oklahoma’s Earned Income Tax Credit (EITC) non-refundable. The EITC is a tax credit designed to incentivize work and keep low-income working families out of poverty. It grows along with wage income up to a maximum level and then phases out gradually, so it never becomes a disincentive to earning more wage income.
Making the EITC non-refundable in 2016 saved about $25 million for the state budget, but only by undercutting a key poverty-fighting tool with a long history of bipartisan support and proven, long-lasting benefits for entire families. Refundability is critical to the success of the EITC because it allows the credit to reward work even if families have small state income tax bills — yet these families are all paying sales taxes, payroll taxes, and, directly or indirectly, property taxes as well.
Without refundability, the EITC does far less to reduce poverty for those workers earning the least. For example, a single mother with two kids working full-time at $10 an hour ($20,800 annually) lost $231 when the state EITC was made non-refundable. A married couple with 3 children making $20,800 lost $313.
When lawmakers were debating their cut to the EITC, dozens of clergy, non-profits, and foundation leaders spoke out to defend it. Since the cut went through, the Legislature has faced backlash in Oklahoma and nationally. In a scathing editorial, the New York Times wrote that the measure “cruelly targeted some of the state’s most vulnerable citizens — the working poor — by cutting an average $147 a year from the income of 200,000 households. Several members of the Legislature expressed regret over their vote, and many members promised to fight for restoring the EITC in coming years.
Bipartisan consensus behind the EITC helped make sure that restoring the credit was included in House and Senate budget plans in the last few weeks of special session. It has been perhaps the only uncontroversial element of a package that also included increasing the cigarette tax, fuel tax, and most recently, the gross production tax on oil and gas drilling. Unfortunately, last week’s narrow failure of the overall package appears to have taken the EITC down with it.
Unless a deal can be resurrected, working families will go another year without the full benefit of the state EITC. They will have less incentive to work — and may actually find it impossible to work when the low wages offered aren’t enough to make up for added child care costs. Those parents who are still working will have less to pay down debts or save for the future, which means their long-term ability to rise and stay out of poverty will be compromised. It will make all of the problems facing poor and working-class Oklahomans just that much harder.
That’s a shame, because lawmakers from both parties clearly want to undo this damage and restore the EITC. Instead of what the majority wants, the EITC has become another victim of Oklahoma’s extreme super-majority requirements and a few hold-out legislators who are blocking the popular will. Restoring the EITC is another reason why lawmakers should keep the pressure on to change the last few votes needed for the comprehensive solution that Oklahomans want.