(The Center Square) – There are 32 states, red and blue, who offer some version of an Earned Income Tax Credit, or EITC.
Pennsylvania isn’t one of them. The House Finance committee met with experts for an informational hearing on why that should change.
The hearing largely centered around what are known as ALICE families and individuals, which stands for Asset Limited, Income Constrained, Employed. These families live above the poverty line and often earn too much to receive assistance yet financial stability and everyday necessities remain out of reach.
“We agree on many of the underlying issues that make a state EITC a smart investment for Pennsylvania,” said Rep. Christina Sappey, D-Kennett Square, citing the need for more people choosing to live and work in the state. “The possibility of a middle class life has become increasingly remote.”
Sappey introduced a bill during the last legislative session that would create an EITC option for Pennsylvanians. She noted that the federal version lifts six million Americans out of poverty each year, half of whom are children. Though her first bill passed the House with support from a handful of Republicans, it never made it out of committee in the Senate.
Advocates say the tax credit makes a demonstrable difference in families’ lives, helping to cover the cost of medical care, pay down debt, and even buy fresh fruits and vegetables that are otherwise too expensive.
Dr. Cynthia Osborne, executive director of the national Prenatal-to-3 Policy Impact Center, noted that the credit even has an impact on birth outcomes, leading to higher birth weights and better health.
States have various approaches to the credit, many offering a percentage of the federal EITC. The credits are broadly popular because they incentivize work and favor families supporting children and other dependents. Current proposals include a refundable credit for 25% of the federal credit.
Michael Hussey, a tax attorney who works with the United Way’s VITA programs providing tax preparation assistance to those who need it, says that he’s seen the federal credit change lives. He spoke of a grandmother raising her minor grandchildren who made just $20,500 annually. Her federal return of $10,990 increased her household budget by over 50%, enabling her to fix her car and continue working.
While members of the Finance committee were generally supportive of the rationale behind an EITC, a few voiced concerns about spending money the state doesn’t have. The credit would cost around $600 million and is not factored into the current budget proposal, which already exceeds the state’s projected revenue.
Rep. Mike Jones, R-York, suggested that a program like this which lowers taxes and puts money into the economy is a better investment than the comparable price tag the state pays to support state-related universities like Pitt, Penn State, and Temple.
“Not only does this put more much needed money in the pocket of the lower-income workers, and again, these are people working, but it keeps them in the workforce,” said Jones. “If they stay in the workforce, we not only get the benefits of them paying taxes and spending that money, but it keeps them progressing in their career.”
Kristen Rotz, president of United Way of Pennsylvania, says for every dollar invested in an EITC, there is $4 in economic growth and a $3 reduction in public service costs.
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Osborne said the credit would benefit the commonwealth by about $965 million annually as a result of increased income tax revenue, sales tax, employer taxes, and reduced reliance on public assistance programs.
According to the United Way, in Pennsylvania, about 41% of households are living with this kind of financial insecurity. Among them, 28% are ALICE while an additional 12% are living below the federal poverty line. ALICE thresholds vary locally based on cost of living.
