Congress: Save Critical Provisions of Working-Family Tax Credits

In the coming days, federal policymakers have the opportunity to save critical provisions of working-family tax credits that allow low-earning Californians to create better lives and that contribute to economic stability across the state.

By making permanent a number of enhancements to the federal Earned Income Tax Credit (EITC) and Child Tax Credit that are slated to expire, Congress can preserve vital support for hard-working Californians who’ve been left behind by the uneven recovery and prevent millions of people in our state from falling into — or deeper into — poverty, as we discuss in depth here.

Letting improvements to the federal EITC sunset could hurt working families, businesses, and communities throughout California. If policymakers allow these provisions to expire, around 1 million California households that are struggling to meet their basic needs would receive smaller credits or lose access to the credit entirely, according to a new report by the Brookings Institution. The typical household whose budget would be hit earns just $28,000 a year, only slightly above the federal poverty line for a family of four. In addition, because families with at least three children would receive smaller federal credits, they’d also see their state EITC decline, since California sets its credit as a percentage of the federal EITC.

California stands to lose a total of $538 million in federal funds if the federal EITC enhancements expire — dollars that would have gone directly into the pockets of low-earning workers who likely would have spent those dollars at local businesses, helping to support jobs and boost state and local tax revenues. In fact, this loss of federal funds would far more than offset any additional federal dollars that California’s new state EITC helps bring into the state. (California’s state credit creates an incentive for workers who otherwise would not have filed taxes to claim both the state and federal EITCs. Additional federal EITC claims resulting from the newly created California EITC would bring potentially tens of millions of additional federal dollars into the state, as we discuss here.)

Communities in California that are already struggling with high levels of economic hardship are likely to be hit the hardest if Congress fails to save improvements to the federal EITC. California is home to 5 of the 20 large metropolitan areas that — barring action by Congress — are expected to see the greatest percentage drop in federal EITC payments, according to Brookings. These metros include Bakersfield, Stockton-Lodi, Fresno, Riverside-San Bernardino-Ontario, and Sacramento–Roseville–Arden-Arcade. All of these areas are located in counties where large shares of people have been left behind by the current economic recovery, as we show in our recent analysis of county poverty rates.

As federal policymakers wrap up their work for 2015, they should extend the provisions of our nation’s working-family tax credits so that California’s families, businesses, and communities that are already grappling with the effects of an uneven economic recovery don’t have to suffer another blow.

— Alissa Anderson