August 25, 2008
A State Earned Income Tax Credit Would Benefit More West Virginians than State Family Tax Credit
by Andrea Franco Cook
Recognizing that low income West Virginians were paying a disproportionate amount of state taxes, the Legislature enacted a State Family Tax Credit (SFTC) in 2007.[1] It offers a full credit upon income taxes for residents below the federal poverty line, and it provides a partial credit to residents with incomes above this level.
In its first year, the SFTC was designed to offset up to 50 percent of the income tax liability for eligible families, providing an average benefit of $83. In subsequent years, the SFTC will increase to 100 percent of taxes owed, with an average credit of about $166. In 2007, the SFTC provided help to approximately 68,754 low-income West Virginians.
While the SFTC was an important first step toward addressing the state’s high rates of poverty and its regressive tax system, a West Virginia State Earned Income Tax Credit (SEITC) modeled after the federal EITC would help a broader population of West Virginians than the SFTC. [2] If West Virginia had a SEITC set at 20 percent of the federal EITC, it would benefit more than the 145,000 low-income working families and give them an average benefit of $351. This is more than double the benefit and participation of the SFTC.
Another feature of the SEITC is that it specifically targets working families and those trying to enter the workforce. Unlike the SFTC that decreases as earnings increase, with eligibility levels ending at 120 percent of the poverty line, the SEITC provides an incentive to work. This is because as people earn more, the benefit increases, reaches a plateau, and phases out as incomes become more self- sustaining. This would provide the important work support that increases a parents’ ability to enter the workforce. [3]
The SEITC would also specifically target low-income working families with children. If West Virginia enacted a SEITC, approximately 97 percent of benefits would go to households with children and 60 percent of eligible parents for the SEITC would be full-time workers.[4]
As of 2008, twenty-four states have adopted SEITC programs with eligibility requirements modeled after the federal credit. [5] Benefiting only families and individuals that work, the majority of SEITC’s are set at a fixed percentage of the federal EITC---ranging from 3.5 to 40 percent.
If West Virginia were to adopt a refundable SEITC, it would provide additional income to sufficiently help working family’s build a better future for themselves.
End Notes
[1] For further information about the
West Virginia State Family Tax Credit refer to
http://www.legis.state.wv.us/Bill_Text_HTML/2006_SESSIONS/2x/Bills/sb2010%20eng.htm
[2] According to the US Census Bureau, West Virginia’s poverty rate was 17.3 percent and its child poverty rate was 24.6, ranking 5th highest in both categories. For information on West Virginia’s regressive tax system, see out “Map of the State Budget.” p. 22-3
[3] CBP analysis of American Community Survey
[4] Ibid
[5] For further information about
federal and state EITC’s refer to
http://www.cbpp.org/6-6-08sfp.htm