A State EITC Would Complement Other Public Supports That Boost Families’ Economic Security

It’s well established that the “official” federal poverty line falls far below the level of income Californians actually need to be economically secure in our high-cost state. Our research finds, for example, that a single parent with two children needs to earn almost $75,000 annually — around four times the poverty line — just to afford the basics, including housing, food, and child care. The typical single mother, however, earns only about one-third of this amount — around $26,000 per year. This means that many families face significant challenges making ends meet, with incomes too low to cover basic expenses but too high to qualify for most public supports, such as CalWORKs — California’s welfare-to-work program — and CalFresh food assistance.

To help all Californians achieve economic security, public supports need to target a broader range of families, not just those living below the federal poverty line. One option policymakers are considering is creating a state Earned Income Tax Credit (EITC) modeled after the federal EITC, which is a refundable tax credit that encourages and rewards work, as we explain in our report. If designed to match the federal credit, a state EITC would have a broad reach, reducing economic hardship for more than 3 million low- and moderate-income households and helping to fill in where other public supports fall short. For example, a state EITC would:

  • Benefit families whose earnings are too low to cover basic expenses but too high to qualify for most public supports. A single mother of two who earns $26,000 a year, about the median income for female-headed families with children in California, would have a tough time affording basic living expenses in most parts of the state. Housing alone would eat up about 60 percent of her earnings, while food costs would take up around 30 percent, based on our analysis, leaving little room for other basic expenses. Nevertheless, her income would be too high to qualify for assistance from CalWORKs or CalFresh. She could, however, receive around $3,900 from the federal EITC, and a state credit set at 15 percent of the federal credit could provide close to another $600, enough to cover about four weeks of food for her family. A 30 percent state EITC could provide her with more than $1,100, which could be used to buy about eight weeks of food.
  • Benefit workers with moderate earnings who struggle financially due to insufficient work hours. A single mother of two who earns $13 per hour but works just 30 hours per week due to a lack of full-time child care brings home $20,280 annually. Although her income is barely above the poverty line, it’s too high to qualify for CalWORKs, and her hourly wage is too high to be affected by the $1 per hour minimum wage increase that’s scheduled to take effect in January. The federal EITC, however, would boost this mother’s income by around $5,100, lifting her family well above the poverty line. A 15 percent state EITC would provide more than $700 on top of that, while a 30 percent credit would provide more than $1,500, which could cover food costs for her family for around 10 weeks.
  • Reduce economic insecurity among childless workers, who typically receive little or no assistance from public supports. Relatively few childless adults qualify for the federal EITC, and those who do qualify receive relatively small credits, less than one-tenth of the credit received by families with children, on average. These adults also typically don’t qualify for, or can only receive limited assistance from, other public supports that could supplement their low incomes. Policymakers could design a state EITC to provide larger credits to childless workers, as we discuss in our report. A state EITC set at 100 percent of the federal credit, for example, could provide a significant boost to these workers, as much as $1,006 annually when combined with the federal credit. For a part-time minimum wage worker, such a large combined credit is the equivalent of receiving as much as a 15 percent raise.
  • Reduce the depth of poverty for workers with extremely low earnings, complementing assistance from other public supports. A single mother of two who works part-time at the minimum wage earns just $9,360 annually. This income is below the “deep poverty” threshold of half the poverty line. With such low earnings, this mother would be eligible to receive just over $5,000 in CalWORKs cash assistance. Yet, this cash grant would boost her total income to only about three-quarters of the poverty line. (This mother would likely also benefit from CalFresh food assistance and subsidized child care, but based on her cash income she would be living in poverty.) With additional assistance from the federal EITC, her total income would increase by around $3,700. A 30 percent state EITC could provide her with more than another $1,100, nearly bringing her income above the poverty line and providing enough money to cover food costs for almost eight weeks.

With many low- and moderate-income families struggling financially, it’s an ideal time for California to create a state EITC. As policymakers consider whether to make California the 26th state in the nation with a state EITC, they should keep in mind that a state credit would benefit a diverse range of Californians and fill in where existing public supports, like CalWORKs and the minimum wage, fall short.

— Alissa Anderson