In Oklahoma’s tax code, there are multiple tax breaks for high-income individuals and businesses. But just three tax credits are targeted at low-income Oklahomans, and one of those – the Earned Income Tax Credit (EITC) – was slashed in 2016 to help balance the books during a severe budget crisis. That move to undercut a key poverty-fighting tool with a long history of bipartisan support was one that many lawmakers regretted at the time and still regret today. Now that the state’s budget outlook has improved and lawmakers are looking at a healthy surplus, the Legislature should focus this year on correcting that mistake by restoring the EITC.
Who benefits from the EITC?
The EITC most benefits the working poor – people who are working hard in low-wage jobs trying to get ahead and support their families. The credit is designed to encourage work and help low-income families avoid poverty. The credit grows along with a family’s income up to a certain threshold, and then gradually phases out so that it never becomes a disincentive to earning more money.
Many of the families that are eligible for the EITC have such low incomes that they owe very little in income tax. But these families are still paying their fair share of taxes through state and local sales taxes and payroll taxes. In fact, the average Oklahoma family earning less than $20,000 a year pays twice as much of their income in state and local taxes as the wealthiest Oklahomans. Families that receive the EITC are working hard to stay afloat and make ends meet, and slashing this critical boost to their financial stability was the wrong way to fill the state budget hole.
What does the cut to the state EITC mean for working families?
The EITC is still available in Oklahoma, but it’s no longer refundable – that means it doesn’t help working families nearly as much as it used to. Since 2016, if a family’s state EITC is larger than the amount they owe in income taxes, the balance is no longer refunded to them. This cut resulted in more than 200,000 Oklahoma families losing some, or all, of the value of their EITC. Statewide, low and middle-income working families lost nearly $28 million due to the cut. That’s an average of $121 per family, and many low-wage families lost even more. For example:
- A married couple with two children earning poverty-level wages ($24,600) lost $264
- A single parent with two children making $10 an hour lost $231 dollars
- A single parent with one child making minimum wage ($7.25 an hour) lost $169
This cut is a substantial loss for low-income families, but it’s also a loss for our communities and the state. Households that receive the EITC use a large portion of their tax refunds to purchase basic needs, like food and clothing, or bigger-ticket items they’ve been putting off – replacing a broken appliance, for example. Those purchases put money right back into the local economy to support local businesses and generate sales tax revenue for state and local governments.
The EITC also improves the overall health and well-being of the families that receive it, according to a wide body of research. Children perform better in school and are more likely to graduate from high school. Expectant mothers are more likely to receive prenatal care and have healthier babies. And families can save some of the money and provide a safety net for their families that prevents them from slipping into poverty, alleviating a great deal of stress from parents. Our communities and our state are worse off when working families don’t have enough money to make ends meet.
Where do things stand?
The Legislature has been close to a bipartisan agreement to restore the EITC in the last two legislative sessions, but it was dropped from the final budget deal in both years. This session, a total of nine bills to restore the refundable state EITC were introduced in the Legislature, including one (SB 659 by Sen. Montgomery) that would have also increased the credit to 7.5 percent of the federal credit (the state credit is currently 5 percent). None of these bills were taken up by their respective committees before the committee deadline, but that doesn’t mean this proposal is dead. Restoring the EITC could still be included in the budget package and added to legislation that can be introduced at any time through the Joint Committee on Appropriations and Budget. OK Policy and other groups will continue to advocate for this issue to remain part of budget negotiations.