States Responding to Federal Tax Reform Could Consider Credits for Low-Wage Workers

By Lauren Pescatore

Tax credit advocates may have an unforeseen window of opportunity for progress in 2018, as states across the country look for ways to protect their residents from tax hikes brought on by the Tax Cuts and Jobs Act.

The new legislation makes sweeping changes to the federal tax code that primarily benefit corporations and wealthy Americans at a steep cost: possible cuts to vital safety net programs for low-wage workers. Now, according to the Associated Press, a number of states are exploring legislation to shield their residents from any resulting tax hikes.

Enacting new state-level tax credits for working families or expanding existing credits are among the best ways to provide tax relief to those who need it most. State-level Earned Income Tax Credits (EITCs), Child Tax Credits (CTCs) and Child and Dependent Care Tax Credits (CDCTCs) build on their federal counterparts to help struggling workers keep more of what they’ve earned. Annual analyses of state-level data on economic well-being, such as the Annie E. Casey Foundation’s KIDS COUNT Data Book or the Prosperity Now Scorecard, consistently find that low-wage Americans and their children are better off in states that offer their own versions of the federal credits. Research shows that these tax credits not only boost incomes and reduce poverty, but also improve health and educational outcomes among recipients’ families. What’s more, state-level credits have very low administrative costs and are relatively easy to administer.

In 2017, three states enacted new EITCs and two expanded existing credits. This year could be even more promising for state-level tax credits. Michigan lawmakers have introduced legislation to expand the state’s EITC and enact a new CDCTC, Missouri and West Virginia are considering legislation to create a state-level EITC, Maine lawmakers have proposed doubling the state’s EITC and enacting a new CTC, and Idaho’s governor proposed creating a state-level CTC, to name a few.

As states continue to wrestle with the implications of federal tax reform, we may see increased opportunities for tax credit legislation to move forward.

If you are working on tax credit legislation in your state and need communications guidance or support, please contact us.