Center for Economic Progress applauds increases in vital tax credit
CHICAGO, Jan. 10, 2012 /PRNewswire-USNewswire/ -- A tax credit that provides Illinois families with a financial boost each year will mean even more to them in the near future, according to the Center for Economic Progress (CEP).
"Increasing the state's Earned Income Tax Credit (EITC) is one of the single best ways to help working families who struggle to make ends meet," CEP President David Marzahl said of Senate Bill 400, which was signed into law Tuesday. "The increased EITC will provide targeted tax relief to Illinoisans who work hard and play by the rules – but often have the least to show for it."
CEP is nationally recognized for its work with low‐income families, turning tax time into an opportunity for them to get ahead. In 2011 CEP provided free tax help to more than 28,000 Illinois families, generating more than $50 million in refunds, primarily through the federal and state EITCs. Since 1995 CEP has helped 302,000 Illinois taxpayers meet their tax filing needs, returning $441 million in federal and state refunds.
"The new law will increase the after‐tax income of more than 900,000 working households over the next two years, helping them pay for such things as groceries, rent, utility bills and car repairs," Marzahl said. "But it also will provide a boost to Illinois' recovering economy as families spend EITC dollars in their local communities."
"What's good for families is good for business," Marzahl said, noting a Brookings Institution study that has shown that every EITC refund dollar realized by a family translates into $1.58 of local economic activity.
During a bill‐signing ceremony at Chicago's James R. Thompson Center, he applauded the longstanding commitment to the EITC by Governor Pat Quinn and supportive legislators such as House Majority Leader Barbara Flynn Currie and State Senators Toi Hutchinson and Jacqueline Collins.
These elected officials are among the EITC champions who have worked for years to increase the tax credit, supported by Make Work Pay coalition members such as CEP, Voices for Illinois Children, the Sargent Shriver National Center on Poverty Law and Protestants for the Common Good.
The Illinois EITC piggybacks on and increases the value of the much bigger, federal EITC. Low-and moderate‐income families can claim these credits at tax time if they have earned income from work; the exact size of their credit depends upon household size and earnings. The federal credit is worth a maximum of $5,571 (for a family of two adults and three or more children filing income taxes this year).
The Illinois EITC, established in 2000, has been calculated at only 5 percent of the federal credit which means that tax filers will be able to claim a maximum state EITC of $288 when they file their 2011 taxes. That's tied for the second‐smallest state EITC among the two‐dozen states that have such credits.
Under the new law, the Illinois EITC will increase in size by 50 percent in 2013 and then double in 2014. So this year's $288 maximum state EITC should increase to a value of about $432 next spring and $576 the following year.
"The greatly expanded state EITC provides a financial boost to families hard hit by the economic downturn – particularly when combined with the assistance they get from the federal EITC," Marzahl said. The federal EITC is expected to bring more than $2.2 billion in refunds to more than a million Illinois families this year.
Besides paying bills, families often are able to put some of their EITC refund toward retiring debt and establishing savings for household goals or handling emergencies. Asset‐building help and financial education are among the services CEP provides to client families, in addition to assistance with tax returns. Last year, CEP's bank and credit union partners opened more than 1,000 new accounts at CEP's tax sites.
"At the national level, the EITC has long been credited as one of the most effective policy tools for helping families overcome poverty. The recent generational spike in the poverty rate underscores the importance of strengthening this tool further for the families who depend on it, especially in our state," Marzahl said.
In fact, as a percentage of their earnings, Illinois' lowest‐income families paid three times as much as the wealthiest households on state and local taxes in 2007, according to the Institute on Taxation and Economic Policy. That disparity would be even greater without the help of the existing Illinois EITC; a stronger tax credit over the next couple of years should help reduce the gap somewhat.
The EITC boost also will help mitigate one drawback of the state income tax increase that was approved a year ago this week. Illinois desperately needed the new tax revenues to better balance its deficit‐reduction approach, which previously had relied too heavily on budget cuts that are painful to vulnerable families and communities throughout the state. Ongoing cuts in a wide range of critical priorities – education, health care, human services and more – would run far deeper, were it not for the new tax revenues.
"However, the tax increase was enacted without any measure to hold‐harmless the low‐income families who struggle the most to make ends meet. A larger EITC will provide some of that missing progressivity," Marzahl said.
SOURCE Center for Economic Progress