AUG. 1, 2014 -- A key Republican on the House Ways and Means Committee says he is willing to take a look at a tax credit that helps to lift poor people out of poverty.
State Rep. Kenny Bingham, a Cayce Republican who chairs the House Ethics Committee and the K-12 Ways and Means subcommittee, says he will consider co-sponsoring a refundable state earned income tax credit (EITC) if the numbers make fiscal sense to the state.
Currently, more than 500,000 South Carolina federal tax returns were filed for a federal EITC worth more than $1 billion. The credit, approved several times over four decades by a bipartisan congressional coalition, counts prominent backers as former Presidents Ronald Reagan and Bill Clinton.
“It appears that the one program that seems to have worked the best is the EITC in achieving the ultimate goal of trying to move people up the ladder to be self-sustaining when their income isn’t getting them there,” said Bingham, a former House majority leader.
The beauty about an EITC, many say, is it only goes to working people, which gives them an incentive to stay in work so they can receive the federal benefit, which averages just over $2,306 per return in South Carolina. For many low-income families, the tax credit is enough to lift them out of poverty, analysts say.
A new start of a conversation
The possibility of considering a state-based refundable EITC to be a companion to the federal credit came out in a July forum at the Riley Institute at Furman University when Bingham and State. Rep. Gilda Cobb-Hunter, D-Orangeburg, were discussing the option.
Cobb-Hunter, who has pushed for the poverty-fighting measure for years, said this week that she was happily surprised at Bingham’s openness to consider the measure. It’s a big deal, she said, because of the respect Bingham has in the legislature.
“I was shocked, but very pleased to hear him say that because I’ve been introducing this bill for years and it’s gone nowhere,” she said. “It means there is a chance for a bipartisan approach, which is always better than a solo approach.”
How EITCs work
At the federal level, an EITC is a refundable tax credit available for low- to moderate-income working individuals and families. Not only do those who want to get it have to work, but they have to file with the IRS to receive it.
The benefit depends on income and the size of a family. In 2013, for example, a couple with no children could earn no more than $19,680 for a maximum benefit of $487. A couple with one child could earn no more than $43,210 for a maximum benefit of $3,250. Learn more here.
“It also encourages work and increases incentives to be in the work force, particularly where minimum wage jobs or near minimum wage jobs don’t provide enough to live on,” said policy analyst John Ruoff of Columbia.
Currently, 25 states offer an earned income tax credit. Of those, 21 are refundable, which means that recipients get a check from the state to lower their tax burden and offset other tax payments. Nonrefundable credits reduce an income tax liability to zero, but don’t provide a check for further tax relief. (In South Carolina, most people in poverty pay no income tax.)
In December 2012, Cobb-Hunter introduced a bill that called for a state EITC that would start at 10 percent of the federal EITC and phase up to 20 percent over five years.
According to a 2013 revenue impact study by the S.C. Board of Economic Advisers, a 10 percent refundable EITC from the state would cost $139.4 million -- meaning the state would write checks to those seeking a state EITC. If 500,000 returns sought such a credit, the average check would be $279.
Taking a deeper look
Bingham said he was interested in looking deeper at a state EITC because it appeared to be a more effective way to lift people out of poverty.
WHERE THE CANDIDATES STAND
Here’s a look at where South Carolina’s gubernatorial candidates stand on the state Earned Income Tax Credit:
Tom Ervin (I) -- “Part of my economic plan for the state includes a repeal of the personal income tax. If the legislature fails to pass my plan to eliminate the state personal income tax, I would then support an earned income tax credit to help the working people in our state who need tax relief.”
Nikki Haley (R) -- Did not provide an answer after four requests this week. The governor's office did say at publication time that it would have a statement by the close of business. Look here for an update after 5 p.m. Aug. 1.
- UPDATE, 5 p.m.: No policy position provided.
Vincent Sheheen (D) -- “The state may want to consider a refundable earned income tax credit to give low-income South Carolinians an incentive — and a reward — for working. We should reward and encourage work in our state.”
“I support programs that give people a leg up, not a hand out,” he said.
If, for example, people are “trapped” into making a choice to stay at home to receive government benefits instead of working to receive a different government benefit, it makes sense to incentivize people to work and be productive, Bingham said.
“If the numbers do not work, then I’m not going to support the program,” he said. “But to refuse to take a look at a program borders on being ridiculous. The data should drive it. That’s how you make good decisions.”
Cobb-Hunter is confident that data will show state EITCs work.
“In states where there is an EITC, there have been reductions in the number of people who have received assistance in social service programs,” she said.
But there are other benefits. For example, much of the EITC benefit will be recycled directly into local economies by spending. In turn, that will generate sales tax dollars, which could approach $10 million for a 10 percent refundable EITC.
Studies also show that states with EITCs have more single mothers in the labor force, improved child test scores, fewer low birthweight babies and improved health indicators for mothers, according to the Furman forum.
The Center for Budget and Policy Priorities says state EITCs have lasting effects.
“Low-income children in families that get additional income through programs like the EITC do better and go farther in school and, as a result, work more and earn more as adults. This is good for communities and the economy because it means more people and families on solid ground and fewer in need of help over the long haul.”
Cobb-Hunter added there was a big intangible for the working poor, too.
“When you talk about tax credits in a state like South Carolina, think about the affirmation that a working family gets -- ‘Wow, the state of South Carolina thinks enough of me to give me a tax break as well.’ It’s not just all about the corporate businesses and the wealthy.”
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