TANF Funding Squeeze Creates a Substantial Budget Challenge
The Department of Children and Families (DCF) budget proposes a very large cut in the portion of funding for the Earned Income Tax Credit that comes from the federal welfare reform block grant, which is known as Temporary Assistance for Needy Families (TANF). Specifically, the department’s 2015-17 budget proposes cutting $55.8 million from the TANF funding that gets transferred to the Department of Revenue, which would mean that state General Purpose Revenue (GPR) has to fill the very substantial gap.
Assuming the Walker Administration isn’t planning to cut the EITC, I applaud DCF for wanting to use state funds rather than TANF funds to finance that credit for low-income working families. Unfortunately, the Department of Revenue (DOR) budget proposal doesn’t currently include an increased GPR appropriation for the EITC. Taking both agency proposals together, we have a $55.8 million hole that needs to be filled by state policymakers, and that problem is on top of the other structural budget challenges that have gotten more media attention. Read more
Wisconsin’s gradual economic recovery still hasn’t substantially expanded economic opportunity for working people and families. Median incomes are still well below their pre-recession level, and our state’s elevated poverty levels have yet to begin declining.
Increasing Both the Earned Income Tax Credit and the Minimum Wage Would Strengthen Wisconsin’s Families
State lawmakers who want to help Wisconsin families recover from the recession should move to boost both the state’s earned income tax credit and its minimum wage. Each policy on its own helps make work pay for families struggling on low wages, but improving them at the same time goes further to putting working families on the path to economic security and opportunity, according to a new report from the Center on Budget and Policy Priorities.
Low wages make it hard for working families to afford basics like decent housing in a safe neighborhood, nutritious food, reliable transportation, quality child care, or educational opportunities that put families on a path to greater economic security.
But, state lawmakers have tools that can help address stagnant low wages. One, increase the state Earned Income Tax Credit. Two, raise the state minimum wage and make future increases automatic to keep up with inflation
These policies both are targeted to assist only those who are working, helping them to better afford basic necessities, including the things that allow them to keep working, like car repairs and child care. Read more
Targeted tax credits are far more effective than broad-based income tax cuts in keeping taxes affordable for working families, according to a new report from the Institute for Taxation and Economic Policy. Wisconsin could cut taxes for working families by making improvements to its Earned Income Tax Credit, for a small portion of the cost of the recent across-the-board tax cuts in Wisconsin.
To be eligible for Wisconsin’s EITC, taxpayers must be working and must be parents. The EITC encourages work, helps families lift children out of poverty, and has long-term benefits on school achievement and health for children whose families receive the credit.
In Wisconsin, as in virtually every other state, the taxpayers who earn the least pay a greater share of their income in state and local taxes than taxpayers with the highest incomes. In Wisconsin, taxpayers in the bottom 20% — a group with incomes of less than $21,000 – pay 9.6% of their income in taxes, compared to just 6.8% of income for taxpayers in the top 1%, as shown in the chart below. Read more
Wisconsin is a better place when we all do well. Unfortunately, while the wealthiest have seen their incomes skyrocket in recent decades, incomes have stagnated for the middle class and low-income people. It’s becoming harder to stay in the middle class in Wisconsin.
Our state tax system makes this problem worse. In fact, if you look at who pays taxes in Wisconsin, it turns out that middle-class and low-income families pay a bigger share of their incomes in state and local taxes than the wealthiest households in the state. We call on struggling families to pay 9.6 cents out of every dollar they earn in state and local taxes, while the wealthiest taxpayers pay just 6.9 cents out of every dollar of income. And many large, profitable corporations in Wisconsin pay little or no state income taxes.
Wisconsin’s Earned Income Tax Credit helps address this problem by allowing parents who work at low-wage jobs to keep more of their income, making it possible to afford basic necessities. Read more
On the same day that the state Assembly passed a substantial property and income tax cut package, it declined to reverse a recent tax hike for parents who work at low-wage jobs.
The $537 million tax cut package, which diverts money that would otherwise go to the state’s rainy day fund, has already been approved by the Senate and now goes to the governor for his signature. (For more about the tax cut, read our March 4th blog post, Five Things to Know about Wisconsin’s Proposed Tax Cut Package.) ”That’s exactly what taxpayers want — giving their money back to them rather than keep their dollars here in Madison,” Assembly Speaker Robin Vos said in this Milwaukee Journal Sentinel article.
Despite the Assembly’s enthusiasm for cutting taxes, it missed a chance yesterday to roll back a recent tax increase for families with low incomes. The Assembly failed to advance a bill that would repeal changes made the Earned Income Tax Credit in 2011 that resulted in working parents with low incomes paying higher taxes. Read more
The FY 2015 budget proposal unveiled by the President this week addresses an issue that many politicians, researchers and commentators across the political spectrum have recently been talking about – providing assistance to low-income working adults who don’t have dependent children. We were very pleased to see the part of his budget that would help that long-overlooked population by making more “childless” workers eligible for the federal Earned Income Tax Credit (EITC) and increasing the small credit for those who are already eligible.
The EITC encourages and rewards work, offsets federal payroll and income taxes, and boosts living standards. As the Center on Budget and Policy Priorities (CBPP) points out: “Next to Social Security, the EITC combined with the refundable portion of the CTC [child tax credit] constitutes the nation’s most powerful anti-poverty program.” However, the federal EITC currently provides little or no benefit for adults who don’t have dependent children, and the Wisconsin EITC doesn’t apply to that population. Read more
New Analysis Examines Why the Surplus Should be Used to Help Low-income Wisconsinites
In his recent “state of the state” address, Governor Walker said that his plan for using the state surplus aims to “ensure we don’t leave anyone behind in our economic progress.” I applaud the Governor for expressing that objective, but a careful analysis of his plan shows that state lawmakers should amend the special session tax bill if they truly want to accomplish the goal of not leaving behind the Wisconsinites who have been struggling the most in recent years.
After analyzing where the surplus comes from and who gets the benefits, the Wisconsin Budget Project prepared a short paper that explains why some of the surplus should be used to make at least some modest improvements to the state Earned Income Tax Credit (EITC) and the Homestead Credit. You can find that short document here: “Top 10 Reasons to Increase Tax Credits for Low-income Households.”
Our analysis notes that the bottom 40% of taxpayers will get just 15% of the benefit of the Governor’s plan. Read more
Despite Using Far More TANF Funds for the WI EITC, Total Spending Declines
Today is EITC Awareness Day, when the IRS works with community organizations, elected officials, state and local governments, schools, employers, and other interested parties to spotlight the Earned Income Tax Credit, and to encourage more eligible families and individuals to apply for the credit. The IRS estimates that one fifth of eligible taxpayers fail to claim and get this important credit.
In recognition or EITC Awareness day, let’s take a look at the Wisconsin EITC, including some recently released data showing the declining value of that credit over the past years, and the role of that decline in adding to the state surplus. It’s also a good time to consider the effectiveness of the EITC as a tool for helping make work pay for low-income families.
Tax Plan Increases Red Ink in Next Budget and Leaves Holes in This One
Governor Walker conceded to reporters that his new tax cut proposals will increase the red ink in the 2015-17 state budget by about $100 million – meaning that lawmakers will have to grapple with a structural deficit of more than $800 million as the state goes into the next budget cycle.
According to initial statements to the press corps, his proposal includes a $406 million reduction to property taxes, a $98 million cut in personal income taxes, and the use of nearly $323 million to adjust income withholding schedules (which costs the state up front, but reduces the subsequent refunds the state owes to income tax filers). Another $100 million or so will be put into the state’s rainy day fund.
The deeper structural deficit is likely to be the most contentious aspect of Walker’s plan among Senate Republicans, but it is just one of many reasons why I think his proposal is extremely disappointing. Read more