The Importance of Tax Policy in the Fight against Poverty
April 16, 2014Print
This post was written by Ali Mickelson of the Colorado Fiscal Institute and first appeared as exclusive commentary for the Spotlight on Poverty and Opportunity blog. We are cross-posting with their permission.
While these results are impressive, there is still much more that federal, state and local governments can be doing to improve the effectiveness and reach of the EITC and other similar programs.
This past year in Colorado, we passed the Working Families Economic Opportunity Act, creating a state EITC and CTC targeted at low-income families. These tax rebates are automatically triggered when there is a Colorado Taxpayer Bill of Rights surplus, defined as the point at which “revenues grow faster than the rate of inflation and population growth.” The next surplus after the law takes effect is expected to occur in fiscal year 2015-16, and the tax credits will boost the incomes of 400,000 working families. The Colorado Fiscal Institute was excited by the chance to implement proven, effective, efficient tax policy in the state, and it seemed like the legislation would be an easy win for Colorado families.
But when discussing the bill with lawmakers, we frequently received pushback about the cost and relative benefits: why would we spend money on these tax provisions when our schools lack resources or when we rank last in funding for higher education? Luckily, thanks to new research showing the immense immediate and long-term benefits of increasing a low-income family’s income through these types of tax credits, we were able to demonstrate that the EITC and CTC had a high return on investment, including through improved educational outcomes.
Fortunately, the days of unusually tough tradeoffs may be diminishing. The economy is rebounding and revenue is increasing in states around the country. In the coming years, lawmakers may even have the opportunity to develop and implement new anti-poverty measures.
This is certainly the case in Colorado. Revenue is increasing, and interest is growing in new policies that will work to improve the lives of our most vulnerable citizens. As such, we see passage of the state EITC and the CTC as just the beginning.
Although this portion of the bill was later removed because of the expense, it remains a promising tax policy we will work to have enacted in the future.
Policies that target poverty and lift up low-income families are critical to the success of our communities and our economic well-being. Lawmakers have already developed an arsenal of programs that help provide aid to the families that need it the most, including efficient and effective programs like the EITC and the CTC. We hope these credits and other similar policies become a more recognized and utilized component of the anti-poverty agenda.