This year we can improve our social insurance programs to encourage work and support working families

In December 2020, OK Policy released its report Plateaus and Cliff Effects in Oklahoma, which shows how essential our social insurance programs like direct assistance and tax credits are to low- and middle-income Oklahoma families. It also shows that some families receiving assistance may see a resources “plateau” (where declining assistance leaves the family little better off when they earn more money) or a “cliff” (where they’re no longer eligible for a program and end up with less to spend, even after earning more). The report also includes recommendations to help those families who can earn more.

We should act on some of these recommendations immediately given the economic impacts of COVID-19. By Thanksgiving 2020, nearly half of Oklahoma households had someone who had lost their job during the pandemic. Job loss so far has disproportionately hit families with children; those below age 40; those with lower incomes; singles; Latinx, Blacks, Asians, and multi-racial Oklahomans; and those without college degrees. Their loss of income and inability to pay for food, shelter, health care, and the needs of their children could change their life trajectories forever, and it could hamper our state’s long-term economic recovery. 

Lawmakers must update low-income tax credits to put money in the hands of those who need it most

Our state has two broad tax credits for low- and middle-income families — the Earned Income Tax Credit (EITC) and the Sales Tax Relief Credit. These two tax credits supplement the more substantial federal Earned Income Tax Credit, which also is designed to support workers with low-incomes. While Oklahoma was a leader in creating tax credits like this, we haven’t kept up with other states through the years. Our state EITC is now among the lowest in the nation, and we are one of only six states where the credit is not refundable. The amount of Oklahoma’s Sales Tax Relief Credit — $40 per person in the household — hasn’t changed since 1990, so it’s really only worth $26 when accounting for inflation.

To support Oklahoma’s low-wage earners, one of the most important tasks facing the Legislature is restoring the refundability of the state EITC. Refundability means that if a family has more tax credits than the tax they owe, they’ll get the balance back as a tax refund. Refundability was ended in an ill-advised budget patch in 2016. Restoring refundability would assist more than 200,000 Oklahoma families, mostly those with single parents earning $10 or less per hour. Refundability should be the first in a three-step increase in our EITC, which can be phased in over a few years. At the end of these three steps, a single parent working full-time at minimum wage would see almost $700 in additional tax credits. Moreover, the higher EITC would further encourage work by increasing the credit as income grows and providing meaningful help even at wages of $15-20 hourly.  

To claim the state EITC, taxpayers must also claim the federal EITC on their federal returns. As part of EITC Awareness Day on January 29, the Internal Revenue Service and others have provided a wealth of information on how to claim the EITC and the free tax filing services that can help taxpayers do so.

Oklahomans and community leaders concerned about COVID’s impact on low-income families should join the growing call for increasing the federal EITC, which is much larger and thus more powerful than any state’s EITC. Congress could both improve incomes for working families by expanding the federal EITC to both younger and older working adults as well as increasing the credit, particularly for workers without children in the home. Since the state EITC is based on the federal credit, low-income workers would receive higher state tax returns as well.  These changes also would encourage more people to go back to work, as has happened with every federal EITC expansion. 

Looking at the other key tax relief measure for low-wage earners, the Sales Tax Relief Credit helps make up for the fact that sales taxes are regressive, meaning lower-income households pay a higher share of their income on these taxes than anyone else. Oklahoma is one of seven states providing an income tax credit to help cushion the impact of the sales tax. Our $40 per person credit is considerably less than New Mexico’s maximum credit of $120 per person and Kansas’ maximum $125 per person. If Oklahoma triples the credit to $120 per person and adds an income phaseout seen in other states, we can dramatically improve the power of this credit, make our taxes fairer, and support working families. These changes can help keep a family from losing its entire credit when it earns a dollar over the maximum income for this credit. The chart below shows that a married couple with two children and income below $50,000 would gain $320 each year by increasing the Sales Tax Relief Credit to $120 per person. Once their income exceeded $50,000, they would still have a smaller credit, whereas now they receive none at all.  

We can help the lowest-income workers by rewarding TANF families with employment

Oklahoma’s Temporary Assistance for Needy Families is a federally-funded program for children deprived of support because of a parent’s death, incapacity, absence or unemployment; TANF serves just 1 in 10 Oklahoma households in poverty. Our TANF cash benefits are also low (less than $50 per month per child). Oklahoma has reduced this benefit over the years, and its value also has decreased due to inflation. Given political antipathy toward TANF, that trajectory is not likely to change. What we can and should change, though, is continuing benefits for families until their circumstances improve. We can do that by “disregarding” some earned income and child support payments. That means this money doesn’t count as income for determining a household’s monthly TANF benefit. OK Policy’s recommendations are:

  • Disregard all earned income up to the poverty threshold and then phase out the disregard. 
  • Disregard $100 per month in child support ($200 per month for more than one child) from TANF and pass through the disregarded amount to the family. Currently Oklahoma counts child support as income and keeps the support payment to reduce the costs of TANF. Many states have adopted child support disregards, including Colorado’s recent decision to disregard all child support from TANF income, which has dramatically increased child support payments.

The chart below shows that combining these two recommendations provides very low-income families with small but still significant support. Working full time at minimum wage, an adult with one child would receive roughly $800 more per year with the recommended policies (yellow line) than the current ones (gray line). The family would see smaller increases as income grows to an $11 hourly wage. The additional resources for the family are small, but can make a huge difference when raising a child in poverty. Just as important, they reward working and paying child support, while the current policies discourage both.

We should explore long-term options to better support families who need our help the most

The pandemic and its effects require immediate action on the state’s parts, and the actions recommended here will make a substantial difference for hundreds of thousands of Oklahomans and in our communities statewide. Our report points out that families face significant cliffs when they reach the maximum eligibility for child care subsidies and for Medicaid for children. The latter can be addressed by increasing the eligibility level, but there are few options to protect families from a sudden jump in child care costs when they reach the maximum income. Child care has been one of the industries most damaged by the pandemic and the lack of dependable and affordable care is preventing too many parents from getting back into the workforce. We must be creative and look at new options to help parents return to the workforce, like a supplemental state child care assistance program and significant tax benefits for families facing the child care cliff. Oklahomans who know how essential child care is for our economy and for child development should also seek changes in the federal child care programs in order to allow states to replace this cliff with a gentle slope.

The times may be desperate, but we can make them less so

Every one of us will suffer if we don’t help those whose income, health, and food security have been most damaged by the pandemic. We have the means to provide that help, but we must find the will. Those who are concerned can help build that will by:

  • Contacting legislators and asking them to restore EITC refundability and increase the state EITC in the coming years, as proposed in SB 249 by Sen. John Michael Montgomery, R-Lawton, SB 218 by Sen. Carri Hicks, D-Oklahoma City, and HB 1639 by Rep. Mark Lepak, R-Claremore;
  • Asking your legislator to sponsor a bill increasing the Sales Tax Relief Credit; 
  • Asking your legislator to let TANF families have more of their child support and their earned income, as proposed in SB 1024 by Sen. Jo Anna Dossett, D-Oklahoma City; and
  • Contacting your Congressional representatives and senators to ask for increasing and expanding the federal EITC. 

Oklahomans have always been good people who care about their neighbors and our state’s future. This legislative session gives us more opportunities than usual to show that’s still true.

 

ABOUT THE AUTHOR

Paul Shinn

Paul Shinn is a Budget and Tax Senior Policy Analyst with OK Policy. Shinn has held budget and finance positions for the Oklahoma House of Representatives, the Department of Human Services, the cities of Oklahoma City and Del City and several local governments in his native Oregon. He's also taught political science and public administration at the University of Oklahoma, University of Central Oklahoma, and California State University Stanislaus. While with the Government Finance Officers Association, Paul worked on consulting and research projects for the U.S. Environmental Protection Agency, the U.S. Department of Transportation, and several state agencies and local governments. He also served as policy analyst for CAP Tulsa. He holds a Ph.D. in Political Science from University of Oklahoma and degrees from the University of Oregon and the University of Maryland College Park. He lives in Oklahoma City with his wife Carmelita.

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