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Benefits of Doubling Illinois’ Earned Income Tax Credit

Voices for Illinois Children’s President Tasha Green Cruzat recently testified before the Illinois House Revenue and Finance Committee on the importance of increasing the state’s Earned Income Tax Credit (EITC).

The federal EITC is one of the most effective poverty fighting measures. A federal tax credit for low- and moderate-income working people, the EITC allows an individual to take a percentage of earned income as a credit against his or her tax liability. If the amount of the credit (based on income, marital status, and number of children) exceeds the individual’s tax liability, the federal government refunds the balance to the taxpayer. In 2015, the federal EITC kept 6.5 million people out of poverty. More than half of them were children.

federal EITCTwenty-six states and the District of Columbia have enacted state EITCs. In Illinois, a taxpayer receiving the federal EITC may take 10% of that amount on his or her state income tax return. The credit is also refundable in Illinois. In Tax Year 2014, more than 900,000 Illinois taxpayers took advantage of the state EITC for an average of $245. HB 2475 would increase the state’s EITC from 10% of the federal EITC to 20% over five years. Given projected increases in the federal EITC, the bill could result in an additional $265 annually (after five years) for taxpayers claiming the Illinois credit. That’s additional money used for basic necessities:  buying groceries, paying for car repairs, or helping to pay for child care.

State EITC

A study of state EITC’s done by the University of New Hampshire[1] found they resulted in lower use of public health insurance and greater use of private health insurance for children. It also showed that mothers reported improvements in their children’s health (particularly for children ages 11 to 14).

Other studies show children in families receiving the EITC score higher on educational tests and are likelier to graduate from high school[2].

The state EITC is a good investment for Illinois citizens as well as communities around the state. A review of economic studies by the U.S. Conference of Mayors shows that for every EITC dollar increase received by low and moderate income families, there’s an economic multiplier in the money generated in local economies of 1.5 to 2[3].

  • In a study of EITC benefits received by Michigan residents in 2006, every EITC dollar spent generated $1.67 in new economic output in the state[4].
  • A 2010 study of 58 California counties showed $3.6 billion in federal EITC dollars spent locally generated $5.08 billion of economic output, $1.24 billion in labor income and $355 million in tax revenue[5].
  • A 2004 study of the impact of the federal EITC in San Antonio area showed every EITC dollar received resulted in a local economic impact of $1.58[6].

The actual dollars returned to a community may depend on how many taxpayers claim the credit in each year, the amount of the credits, and the retail market in a community. However, the evidence is clear that investing in the EITC produces economic activity in the taxpayer’s community and tax dollars for both the state and local governments.

Overall, the EITC is a proven winner. It helps lift families out of poverty, improves the health and educational outcomes of family members, and positively impacts local communities.  Voices strongly encourages the state to double its EITC.

Written by Mitch Lifson


[1] Baughman, Reagan. 2012. The Effects of State EITC Expansion on Children’s Health. Carsey Institute. University of New Hampshire

[2] Caines, Roxy. 2017. 5 Ways the EITC Benefits Families, Center on Budget and Policy Priorities

[3] U.S. Conference of Mayors. Dollar Wi$e Best Practices. 2ND Edition. Earned Income Tax Credit.

[4] Anderson Economic Group, LLC. 2006. Economic Benefits of the Earned Income Tax Credit in Michigan.

[5] Avalos, A., and Alley, S. 2010. The economic impact of the Earned Income Tax Credit (EITC) in California. California Journal of Politics and Policy.

[6]Texas Perspectives Inc. 2004. Increased Participation in the Earned Income Tax Credit in San Antonio


 

Increasing Illinois’ EITC Would Reduce Income Inequality

To counteract growth in income inequality, Illinois should double the state’s Earned Income Tax Credit, or EITC. This is a key takeaway from new research done by Federal Reserve economists that found that state EITCs can “significantly increase the extent to which state tax systems reduce income inequality.”

The research found that the higher a state’s EITC, the more powerful the effect. For example, between 2003-2007, when Illinois’ EITC was 5% of the federal EITC, it decreased income inequality by 0.4% (measured by comparing the 10th and 90th percentiles of income). In contrast, the study showed that Maryland’s EITC, which was 20% of the federal EITC, reduced income inequality in Maryland by 2.2%. While these numbers may seem small, the study found that state EITCs can “meaningfully reduce income inequality.”

The research also notes that there is strong evidence that the EITC increases employment rates by rewarding work. Thus, increasing the EITC not only gives low- and moderate-income working families more of what they pay in taxes back, it also results in higher wage income.

Illinois’ EITC is currently 10% of the federal EITC. If Illinois were to double its EITC, more than 900,000 low- and moderate-income working families would see a boost to their income by an average of about $300 annually — an important boost for families trying to make ends meet. While the EITC will not undo the huge growth in income inequality over recent decades, it’s an important step in the right direction.

EITCWorks 2.0: Updated Web App Shows Doubling the Earned Income Tax Credit Lifts Illinois Families Out of Poverty, Boosts Local Economies

EITC state fact sheet image for blog

The Earned Income Tax Credit (EITC) is designed to get and keep low income families working, and state EITCs in conjunction with the federal EITC are considered the most successful anti-poverty programs for children. A coalition is hard at work in Illinois to double the state EITC to lift more families out poverty and pump more money back into local economies. 

Last year the Fiscal Policy Center created EITCWorks — an interactive web app that helps constituents, community leaders, lawmakers, and members of the press alike understand the value of the Illinois EITC for families and communities across the state. The app is available at www.EITCWorks.org, and is based on our analysis of publicly available IRS data.

With recent updates to the app, users can now search EITC data by Illinois senate and house legislative districts. The app also provides fact sheets with individualized EITC data, including the increased impact doubling the EITC would have on households and children benefiting from the EITC, as well as the average boost to the local economy.

Statewide EITC data is shown below to illustrate the information available for every house and senate district in Illinois:

 Illinois EITC, Tax Year 2012

Median income of recipients: $13,436

Households receiving EITC: 902,196

Children in EITC households: 1,181,877

Invisible Text 

Statewide Impact of Doubling the IL EITC

Now With Expansion
Annual boost to working families’ income $300 $600
Annual boost to Illinois’ economy $322.3 M $644.5 M

 

Be sure to check it out at EITCWorks.org!

 

Posted to Blog, EITC

Illinois’ EITC Highlighted in Kids Count Data Book

EITC state fact sheet image for blog

Illinois’ Earned Income Tax Credit (EITC) is featured in the newly released 2014 Kids Count Data Book as an example of state policies that improve the economic well-being of children and families. The report, produced by the Annie E. Casey Foundation, highlights Voices and other advocates’ role in the enactment and expansion of the state EITC over the past two decades.

The Data Book describes why the EITC is so powerful:

EITCs offset income tax liability and may provide a wage supplement for parents with very low earnings…With nearly every dollar spent going directly to low-income working families, EITCs are one of the most cost-effective ways to fight child poverty.

More than 900,000 Illinois families — including nearly 1.2 million children — benefited from the $208 million that the state EITC put back into working families’ pockets in 2012. By increasing economic security for families, the EITC has been shown to have long-term benefits for children, including higher educational attainment and higher earnings as adults. 

The Kids Count Data Book also recognizes the ongoing efforts to double Illinois’ EITC. For more information on why doubling the EITC is so important, visit EITCWorks.org.

Posted to Blog, Child Welfare, EITC

2014 Legislative Session Wrap-Up

Voices for Illinois Children fought hard in the 2014 legislative session to maintain stable and sustainable revenue to educate our children, fund essential services, and pay our bills in a responsible way. As part of that effort we joined coalition partners to advocate for a fair tax and encouraged lawmakers to prevent a $2 billion revenue collapse by maintaining our current income tax rate.

While we were not successful this spring, we are already mapping out our path to victory with our coalition partners to ensure that low- and middle- income families and individuals get a fair shake and that Illinois is on a path to financial security. 

We are encouraged by progress made through the passage of several substantive bills this legislative session. Each of these bills advances the ability of Illinois children and families to grow and thrive: 

  • HB 5707: Based on recommendations from a task force on bullying, this bill ensures that school districts in Illinois have policies in place that adequately protect students from bullying.
  • HB 741: Gaps in Medicaid coverage resulting from Smart Act reforms were closed by HB741—both adult dental and podiatric services are again covered.
  • HB 2793: ISBE will be required to identify and report yearly on key suspension and expulsion data. Schools falling in the top 20% in terms of both racial disparities and numbers of suspensions and expulsions for three years in a row will be required to submit a plan to reduce their ranking. Progress made on implementing the plan will be posted online.
  • HB 8: Thanks to this bill, employers will be required to offer pregnant women with reasonable accommodations in the workplace. This is good news for both moms and their babies.
  • HB 4440: The “floor” for birth to three funding from the ECBG will be statutorily changed to 14% (up from 11%). Current spending equals 14%, but the statutory change ensures this level will be maintained. 

Voices will also continue to work on key legislative priorities that were not addressed before session concluded in May: 

  • Earned Income Tax Credit: Along with our EITC Works! coalition partners, Voices will continue to take the lead on our efforts to expand the state Earned Income Tax Credit. Bills to advance a measure to double the EITC earned a bi-partisan majority of support in the house and senate, and we’ll be working hard this summer and fall to secure a victory for low- and middle-income working families before the year’s end.
  • Student Discipline Disparities: Racial disparities in student discipline, particularly suspension and expulsion, are becoming more prevalent. A measure sponsored by Representative Will Davis, a companion bill to the ISEB data collection bill referenced above, creates new guidelines to reduce the reliance on long-term suspension and expulsion as disciplinary tools, and to provide re-entry support for children who are suspended or expelled. Supporters and opponents are currently in negotiations, and we’ll be working to pass this important piece of legislation in the fall veto session.
Posted to Blog, Budget, EITC, Revenue, Taxes

Worth Mentioning

The impact of the state’s fiscal condition and annual budgetary decisions on children, families, and communities in Illinois is worth mentioning again, and again, and again.Willis-12-of-27-728x717

The Fiscal Policy Center (FPC) has been hard at work advancing these messages to ensure that important priorities aren’t overlooked in the name of political convenience or expediency.

Check out:

 

To keep up with other news coverage of the FPC, visit: http://www.voices4kids.org/category/fpc-in-the-news/

 

Why Double the Illinois Earned Income Tax Credit (EITC)?

A new issue brief by the Fiscal Policy Center (FPC) highlights the impact and importance of raising Illinois’s Earned Income Tax Credit (EITC) from 10 to 20 percent of the federal EITC:

  • Doubling Illinois’ EITC puts an additional $300 back in the pockets of hard-working individuals and families who qualify, helping ensure that people who work are able to make ends meet and avoid poverty.
  • Doubling the state EITC could yield an estimated $322 million in additional local economic activity across the state, boosting local business and economies.Go to EITCWorks.org to see the breakdown of this economic impact by Illinois House Legislative District.
  • Doubling Illinois’ EITC improves children’s chances of success as adults.
  • Doubling Illinois’s EITC is an important step towards addressing upside-down Illinois taxes.

For fifteen years, Illinois lawmakers on both sides of the aisle have recognized that the state EITC is smart policy: past efforts to enact, strengthen, and expand the EITC have been marked by bipartisan support.

Building on those efforts to lift working families and boost local economies, lawmakers should take immediate steps to double Illinois’ EITC to 20 percent of the federal credit.

By doing so, people who work for low or modest wages will be better able to make ends meet; local businesses will see more economic activity; children of EITC recipients will have improved chances of success as adults; and Illinois taxes will be fairer.

Doubling the state EITC is smart policy, and it’s the right thing to do.

Download (PDF, 796KB)

Double the EITC to Make Illinois Taxes Fairer (Among Other Great Things)

The more money you make in Illinois, the lower share of it you pay in state and local taxes. If that sounds unfair, that’s because it is. In fact, low- and middle-income workers pay, on average, two to three times the percentage of their income in state and local taxes that the wealthiest Illinoisans pay. Blog - Illinois' Taxes are Upside Down

Illinois legislators can take an important step toward righting this wrong by strengthening the state’s Earned Income Tax Credit (EITC), as a new report by the Institute on Taxation and Economic Policy clearly shows.

It just so happens that Illinois has the opportunity to expand its EITC this legislative session, as lawmakers in Springfield consider a proposal to double the state EITC. You can learn more about the impact of such a proposal on local communities in Illinois at EITCWorks.org.

But first things first.

What is the EITC?

The federal EITC is a targeted tax credit that only goes to families and individuals who work. It lets low- and moderate-income working families keep more of what they earn to help pay for necessities that help them keep working, such as child care and transportation. The credit offers working families a step up and way out of poverty, helping families get a toehold in the workforce and helping those who experience temporary job loss, reduced hours, or reduced pay stay on their feet.

Illinois is one of 25 states with its own version of the federal credit and that builds on its success. Most state credits are based on some percentage of the federal EITC. Illinois’ EITC is 10 percent of the federal EITC, trailing behind 14 states, including Iowa (14%), Kansas (17%), Vermont (32%), and DC (40%). Like the federal credit, families with children get the biggest benefits—in fact 97% of the state’s investment in the EITC goes to families with kids.

Why is the EITC Important?

1.    Increases workforce participation and reduces poverty

As a supplement to the federal credit, Illinois’ EITC works with the federal credit to increase workforce participation and reduce the number of children living in poverty. In 2012, for example, the average family recipient of the state EITC was able to retain $300 of earnings. If doubled, the average family would retain $600, equivalent to one month’s child care or transportation expenses for a single-parent household in Illinois.

2.    Boosts local economies

For every dollar the federal EITC lets a family keep, it generates $1.50 or more in economic activity. The state EITC also gives local business and economies an additional boost as families go out and spend those dollars in their communities.

3.    Creates lasting educational and earning benefits for low-income children

Research demonstrates that young children in families with enough income to cover basic necessities do better and go further in school and earn more as adults. By bolstering the incomes of working families, the state EITC works with the federal credit to help families meet their basic needs and, as a result, improves kids’ chances of success as adults.

4.    Makes taxes fairer

As mentioned earlier, the state EITC is also an important tool for addressing our upside down tax system, something Illinois greatly needs. Low-income households pay a greater share of their income in property, sales, and excise taxes than the wealthiest households. The state EITC helps right this wrong by reducing taxes for working households who are already paying more than their fair share.

State policymakers should take immediate steps to expand Illinois’ EITC. They will make Illinois’ taxes fairer while also helping to reduce poverty, boost local economies, and create lasting benefits for children.

To read ITEP’s full report click here.

 

EITC Works! Emily Miller on Springfield’s WICS NewsChannel 20

EITC works logo

The FPC’s new website EITCWorks.org was featured last night on Springfield’s WICS NewsChannel 20.

Click here to watch

EITCWorks.org is an interactive web app that allows users to pinpoint how doubling the Illinois Earned Income Tax Credit (EITC) in your area would lift more families out of poverty and boost local economies.

The EITC is designed to get and keep low-income families working, and it’s the nation’s most successful anti-poverty program for children. Doubling the credit in Illinois would lift more families out poverty and pump more money back into local economies.

Doubling the EITC, which can only be claimed by people who earn income through work, is a top priority for ‘EITC Works!’, a coalition Voices convened to ensure Illinois doubles the EITC this legislative session.

 

EITC Works! New Web App Shows Impact of Doubling EITC for Working Families and Local Economies

Today the Fiscal Policy Center (FPC) launched an interactive web app that allows users to pinpoint how doubling the state Earned Income Tax Credit (EITC) would help lift families out of poverty and boost local economies across Illinois. The app is available at www.EITCWorks.org, and is based on FPC analysis of publicly available IRS data. 
EITC state fact sheet image for blog

The EITC is both a federal and state tax credit that can only be claimed by taxpayers who earn income through work. The EITC encourages and rewards work by allowing low-wage workers to retain more of their earnings to help pay for things that help them keep working, such as child care and transportation. As a result, the EITC also reduces the number of children living in poverty, improves kids’ chances of success early in life and as adults, and boosts local economies through increased consumer spending. 

EITCWorks.org helps constituents, advocates, the press, and lawmakers quantify the real impact of doubling the state EITC from 10 to 20 percent of the federal EITC—a proposal that has been made by Governor Quinn and is gaining traction among lawmakers (HB 4474).

For example, from the statewide profile users can learn:

  • 902,196 working households across Illinois receive the state EITC, reaching 1,181,877 children.
  • The state EITC currently boosts the incomes of working families with children by an average of $300 per year. 
  • Under HB 4474, the average value of the state EITC for a family with children would increase to $600 per year—equivalent to a month’s worth of child care or transportation costs for a household with one child and one parent.
  • Based on research showing that every dollar a family saves through the EITC translates into $1.50 put back into local economies, the current state EITC generates $322.2 million in economic activity in communities across the state.
  • Under HB 4474, economic activity from a double state EITC could be expected to increase to $644.5 million.

From EITCWorks.org, users can also retrieve similar data on the impact of doubling the state EITC in their own state House district, download printable fact sheets with district-specific data, and engage in e-advocacy with their lawmakers.

Screen shot EITCWorks.org

As EITCWorks.org makes clear, doubling the state EITC will lift working families and boost local economies—two things that should be top priorities for lawmakers in Springfield. We encourage you to use the site and let your lawmakers know how EITC Works! in your community!