Yesterday, a letter signed by more than 150 Oklahoma clergy was delivered to lawmakers and Governor Fallin, urging them not to slash key tax credits for working families to fix the state’s revenue problems. They were joined by numerous non-profit and foundation leaders who spoke out against cuts to the Earned Income Tax Credit, Child/Child Care Tax Credit, and Sales Tax Relief Credit.
Later that evening, lawmakers introduced legislation (SB 1604) that would make the state Earned Income Tax Credit (EITC) non-refundable, slashing its benefit for working families by $28.1 million — a cut of nearly 75 percent. Here are some key facts about this proposal – and the actions you can take:
What is the Earned Income Tax Credit?
- Oklahoma’s state Earned Income Tax Credit matches 5 percent of the federal EITC. The maximum state EITC for a family with two children is $277 and for a family of three children is $312.
- The credit is designed to encourage work by supplementing earned income from lower-wage jobs. The credit increases as income grows, with the maximum credit going to families making about $18,000. Then the amount phases out as incomes rise to about $45,000 a year. Only working parents and a few working singles can claim the credit.
- The state EITC was enacted in Oklahoma in 2000 under Governor Frank Keating. The program has always enjoyed strong bipartisan support as a way to boost work and keep working families out of poverty. The state EITC was claimed by more than 330,000 Oklahoma households in 2014 for a total benefit of $39.1 million.
- The EITC provides a critical boost to the financial security of low-income workers. Many workers use this annual financial boost for asset building. Research shows EITC payment recipients are more likely to use their refund to pay down debt or invest in a savings account. The savings allowed by the EITC have been shown to promote work, reduce poverty and support children’s development.
Making the Earned Income Tax Credit non-refundable would make it much less effective
- Currently, the Oklahoma EITC is “refundable”, which means families receive the full value of the credit even if it exceeds their income tax liability. Refundability is critical to the success of the EITC because it allows the credit to still reward work and support families even if workers have small state income tax bills. Without this component, the EITC does far less to reduce poverty and encourage work, particularly among workers earning the least.[pullquote]“A single mother with two kids working full-time at $10 an hour ($20,800 annually) would see her taxes increase by $231 if the state EITC is made non-refundable. A married couple with 3 children making $20,800 would see a tax increase of $313.”[/pullquote]
- Families who receive the EITC pay more than just income taxes. They all also pay sales taxes and many pay property taxes as well. When you look at all the taxes we pay, the people who qualify for this tax credit pay a much higher percentage of their annual income in taxes than the wealthy. This tax credit helps even this disparity out, but it’s only possible if the tax credit is refundable. If the tax credit is not refundable, it is not able to make up the difference.
- Nearly two-thirds (62 percent) of Oklahoma families currently receiving the EITC would see their benefits reduced or eliminated if the EITC became non-refundable. The average loss would be $91 per currently benefiting family, according to an analysis by the Institute on Taxation and Economic Policy.
- The families hardest hit by making the EITC non-refundable would be parents working in low-wage jobs. Many of these same families have seen their hours cut or their wages lowered due to Oklahoma’s economic downturn, and many can only work part-time due to health issues, family responsibilities, limited transportation, or the unavailability of full-time work.
The EITC is also important for many families headed by a full-time worker. For example, a single mother with two kids working full-time at $10 an hour ($20,800 annually) would see her taxes increase by $231 if the state EITC is made non-refundable. A married couple with 3 children making $20,800 would see a tax increase of $313. Both of these families received $0 from this year’s cut to the top income tax rate.
What you can do
You can use this contact form with sample language to advocate with your legislators and Governor Fallin about protecting the EITC and other broad-based tax credits. You can also share this video to spread the word about the threat to broad-based credits. You can find out more about the campaign to #SaveOurEITC here. To learn about the better options that Oklahoma has to close the budget hole, check out Together Oklahoma’s #DoSomethingOK Campaign.