Buried behind the news headlines that focused on political intrigue and constitutional questions at the end of the recent state legislative session were a number of meaningful policy changes for working Maine families.
One in particular stands out: making Maine’s Earned Income Tax Credit, or EITC, refundable.
Maine has long had a state EITC, which, like the federal EITC, is available only to people who work. Designed to complement the federal EITC, the state credit promotes work, helps low-income families make ends meet and has long-lasting positive effects on children in families that receive them.
But until now, Maine’s credit was not available to some of the poorest working families. Working Mainers with incomes so low that they paid no state income tax received no EITC benefit. For example, a family of four earning $35,000 per year was not receiving any EITC. The bipartisan budget enacted this summer makes that family eligible for a $375 tax credit. Because of this one policy change, the after-tax income for 100,000 working Maine families will increase, pumping up to $9 million back into the state’s economy.
This fall, Congress also has an opportunity to protect the incomes of millions of America’s working families by saving key provisions of the federal EITC as well as the Child Tax Credit, or CTC, that are set to expire.
All these working family tax credits — federal and state — boost the incomes of low-income working families, helping them make ends meet, pay for the basics, such as transportation and child care, that help them keep working and provide them an opportunity to make investments to improve their long-term financial security. For many families, tax refund time is the only time of the year when there is enough cash to make a down payment on a more reliable car, pay for their own or a family member’s education or set aside savings for future needs.
Research indicates that children in families that receive the income boost from these tax credits are healthier from infancy and do better in school. As adults, they earn higher wages and work more hours, boosting their long-term financial stability and making them more productive in the economy, which benefits us all.
But if Congress lets the key provisions of the EITC and CTC expire, 37,000 Maine families — including 64,000 children — will lose some or all of their working family tax credits. Without these tax credits, it will be harder for working men and women to meet the needs of their families and pay for things that help them stay employed.
If Congress does not act, a single mom with two kids earning the federal minimum wage of $7.25 per hour and making $14,500 a year would lose her entire $1,725 child tax credit. While the minimum wage in our state is slightly higher at $7.50 per hour, a Mainer in this scenario wouldn’t fare that much better — she would lose all but $60 of her current child tax credit if Congress doesn’t act to save the credit provisions that are set to expire.
At the same time, Congress should fix a gaping hole in the EITC by strengthening it for noncustodial parents and low-income adults without children. Right now, they are the only workers whom the federal tax code actually taxes into, or deeper into, poverty. Childless workers under age 25 are ineligible for the EITC, so low-income young people just starting out receive none of the EITC’s pro-work incentives and support.
As Congress considers billions of dollars in tax breaks for businesses this fall, they should not leave working families behind. Our delegation should follow the Maine Legislature’s lead and make sure working women and men and their families are a priority, too. These tax credits reward people who work and encourage people to invest in long-term financial security for themselves and their families. By enabling working families to spend more to improve their skills and standard of living, these tax credits strengthen Maine’s economy for all of us.
Eloise Vitelli is director of program and policy development of New Ventures Maine. Garrett Martin is executive director of the Maine Center for Economic Policy.