Commentary: A plea to make earned income tax credit refundable

Rhode Island’s current state and local tax system is unfair to our poorest working families, at a time when the number of children in poverty is increasing. One remedy for this situation would be for the General Assembly to enact pending legislation that would add a refund option to Rhode Island’s earned income tax credit program, It would give cash payments to those lowest-income working families who owe little or no income taxes.

The facts of the matter are not in dispute. Simply put, Rhode Island families ranked in the lowest 20 percent by income, those who earned less than $13,000 per year in 1999, paid a higher proportion of their income in state and local taxes than did higher-income families. Despite our state’s progressive income tax (higher income households pay a greater percentage of their income in taxes), other state and local taxes are highly regressive: sales, excise and property taxes.

Testimony before the Rhode Island Senate Select Committee on Tax Policy in October 1999 by Michael Ettlinger of the Institute on Taxation and Economic Policy quantified this inequity. His group’s econometric model found that, on average, families in the lowest twenty percent income bracket paid 14.4 percent of their income in state and local taxes, while middle income families paid about 11 percent and the highest-income paid 9.9 percent. The Rhode Island Public Expenditure Council has concurred with these findings,

The second fact is that despite a 20 percent decrease in Rhode Island’s welfare tolls and low unemployment, in 2000 the number of our state’s children living in poverty increased to over 42,000, according to Rhode Island KIDS COUNT. Undoubtedly children living in “working poor” families accounted for this increase. We can all agree, I think, that our state’s tax policies, as well as its other social and economic programs, should help move families out of poverty rather than drive them further into it. Yet that’s exactly what our current tax structure does. The good news is that there is a highly effective method for redressing this inequity. It is the earned income tax credit (EITC) refund option, Most of the other fourteen states which have a state EITC give a cash refund to working families whose incomes are so low that they owe little or no state income taxes, but Rhode Island does not. This arrangement in effect “refunds” to those working families with the lowest incomes a portion of the regressive sales, excise and property taxes that they have paid. The Federal EITC has had a refund feature since 1986 for much the same reason — federal taxes, particularly payroll and excise taxes, are a disproportionate burden on the poorest working families.

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William F, Flynn, Jr. MSW, is Coordinator, R.I. Campaign to Eliminate Childhood
Poverty

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