Earned Income Tax Credit
Background
Pennsylvania House Bill 377 proposes a
Pennsylvania Earned Income Credit (EIC),
equal to 30% of the federal Earned
Income Tax Credit (EITC) that eligible
taxpayers could receive to be used
against Pennsylvania Personal Income Tax
(PIT) liabilities. The EIC would help
to move low-income working families out
of poverty and make Pennsylvania’s tax
system fairer. The Pennsylvania
EIC would be most beneficial to families
with children earning incomes less than
$25,000.
The proposed EIC does not replace the
popular Tax Forgiveness plan. A taxpayer
may take the Pennsylvania EIC or Tax
Forgiveness, whichever is larger, but
not both.
The proposed Pennsylvania EIC is based
on the highly successful and time-tested
federal EITC. Federal EITC benefits
are available to families with incomes
up to $34,000 for one child and $38,000
for two or more children. Income levels
are adjusted each year to reflect
inflation. To be eligible for the
proposed PA EIC, taxpayers must receive
EITC from the federal government. Over
765,000 Pennsylvanians received the
federal EITC in 2005.
The federal EITC was created in 1976
under President Ford to offset the
burden of payroll taxes for low-income
working families and to provide work
incentives, and has been expanded under
presidents Reagan, Bush, Clinton and
Bush.
The earned income tax credit has
proven to be the most effective
anti-poverty program, lifting 2.4
million children and more working
families out of poverty than any other
program. It increases employment and
earning of low-income families with
children, especially single-parent
families, and effectively adds about
$2.00 per hour to their earnings.
Families use the EITC to pay for basic
needs they cannot afford such as taking
children to the dentist and overdue
utility bills.
The Pennsylvania Tax Forgiveness program
does deliver critical tax relief to
families who need it. It eliminates or
substantially reduces the Personal
Income Tax owed by many low-income
Pennsylvanians. However, the Tax
Forgiveness program does not encourage
work in the way the EITC does, as none
of the income on which tax is forgiven
is required to come from work.
The EITC, on the other hand, only
includes tax
liability from earned income.
If enacted, the PA Earned Income Credit
(EIC) would be the better option for many
lower-income working families.
Unfortunately, we can no longer support
House Bill 377. Although it provides for a
Pennsylvania Earned Income Credit, it passed
in the Pennsylvania House with a deluge of
amendments that, while providing tax cuts,
holds little or no benefit for poor working
families and would cost approximately of
$2.4 billion dollars in the next fiscal
year. If adopted by the Pennsylvania
Senate, the bill will force deep cuts in
education, health care, public safety, and
human service programs. The bill is
currently being reviewed by the Senate
Finance Committee.
ELCA
Policy Base
Poverty is a problem of the whole human
community, not only of those who are poor
and vulnerable… In light of this reality, we
commit ourselves as a church and urge
members to give more to relieve conditions
of poverty, and invest more in initiatives
to reduce poverty…[Moreover], we call for
tax credits and other means of supplementing
the insufficient income of low-paid workers
in order to move them out of poverty (Sufficient,
Sustainable Livelihood for All, 1999).
What
You Can Do:
·
Visit, call and/or e-mail your State Senator
and ask him/her to vote NO on HB 377,
as currently amended. Also,
let your State Senator know that a state
earned income credit without costly
amendments could be a powerful and
meaningful part of Pennsylvania’s response
to the slowing economy. It would
provide important resources to families
earning under $35,000, money that would put
food on the table and be spent in
Pennsylvania business and communities.
·
Visit, call and/or email your State
Representative and ask him/her to support
the establishment of state earned income
credit legislation (i.e. an unammended
HB 377) to move
low-income working families out of poverty
and make Pennsylvania’s tax system fairer.
Sources: Pennsylvania Budget and Policy
Center
Pennsylvanians for Economic
Opportunity
April 2008
