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Use higher revenues to restore state’s Earned Income Tax Credit

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By Scott Anderson, Bob Jones & Jon Peacock
May 27, 2011

Wisconsin recently got good news. As the impact of the worst recession in a lifetime begins to ease, state revenue over the next two years is expected to be much higher—by $600 million—than projected a few months ago.


That means the situation has changed dramatically since Gov. Scott Walker proposed his budget for the coming fiscal year. Now the Legislature has the opportunity, and the means, to avoid some of the cuts that would have the most damaging impact on the economic prospects of Wisconsin families.


A good place to start would be the state’s Earned Income Tax Credit, which helps working families make ends meet.


The EITC offsets income, sales and property taxes that fall heavily on families of modest means. The governor’s budget would reduce the EITC by $41 million over two years. That would be a harsh blow for working families in Wisconsin that are struggling to get by on low wages. Nearly three-quarters of state EITC dollars go to working families that make less than $25,000 a year.


The EITC is good for Wisconsin’s economy. Because families that receive the credit don’t have a lot of money, they tend to spend those dollars on necessities—quickly and in their own communities. That gives local businesses a much-needed boost.


It’s also good for families. The credit lifts an estimated 18,000 people in families with children (including 12,000 children) above the poverty line and helps ease poverty for another 150,000 each year.


Under the governor’s proposed cut, a single mom with two children making minimum wage would pay $302 per year more in state income taxes. That kind of money can make or break a family’s ability to pay a heating bill or afford repairs to a car that gets workers to and from jobs.


The EITC supplements the federal credit of the same name. Through the years, it has been one of few anti-poverty measures to enjoy enthusiastic support from both sides of the political aisle.


President Ronald Reagan was a big fan. Expansion of the federal credit was a centerpiece of the tax overhaul he signed in 1986. He called that legislation “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”


That bipartisan support led to EITCs being adopted in 24 states and the District of Columbia. The measure creating Wisconsin’s credit was co-sponsored by many Republican legislators and signed into law by Republican Gov. Tommy Thompson.


The new, more optimistic revenue projection doesn’t mean we’re out of the woods. But it easily provides the resources to restore the state Earned Income Tax Credit to a level where it can do much more good than it would under proposed cuts. A strong EITC will continue to help families work their way out of poverty and in the process strengthen Wisconsin’s communities and its economy. That’s a win for everyone.


Scott Anderson is executive director of the Wisconsin Council of Churches; email sanderson@wichurches.org. Bob Jones is director of public policy for the Wisconsin Community Action Program Association; email bjones@wiscap.org. Jon Peacock is project director for the Wisconsin Budget Project; email jpeacock@wccf.org.

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