By Andy Brack | The Federal Reserve Bank of Richmond will be in Columbia May 21 to meet with legislators and community leaders to talk up the earned income tax credit, a federal program it describes as the nation’s largest income-support program for low-income taxpayers.
The federal tax credit currently steers about $1 billion a year to the state as more than 500,000 South Carolina federal tax returns file annually to receive the credit, which only goes to working people as an incentive to stay in work. The benefit averages more than $2,300 per return in South Carolina. For many low-income families, the tax credit plays a significant role in lifting them out of poverty, analysts agree.
The May 21 meeting is a big deal for the state, says Tim Ervolina, head of the United Way Association of South Carolina.
“When the institution that’s responsible for monetary policy tells you that you should do something that will improve economic growth and reduce poverty, you might want to listen.”
For years, Rep. Gilda Cobb Hunter, D-Orangeburg, has pushed for the state to provide its own earned income tax credit to supplement the federal credit as a poverty-fighting measure. A bill currently in the House, H. 3029, seeks to provide a state credit valued at 10 percent of the federal credit with incremental increases until it was worth 20 percent of the federal credit. The bill has no co-sponsors to date, but last year, a senior House Republican signaled that the idea had merit, as highlighted in this Statehouse Report story.
Reagan backed the EITC, but S.C. Republicans haven’t
Despite the credit being championed in the 1980s by President Ronald Reagan as “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress,” South Carolina and most Southern states have not adopted a comparable state EITC to provide an additional benefit to working families. Observers quietly suggest that it’s because state Republicans view the tax tool as a Democratic handout, even though the program has bipartisan roots and rewards only those who work.
So now comes the visit by the non-partisan Richmond Fed, which has been meeting around the region with leaders to educate them about the success of the federal EITC. On Tuesday, they take their educational show to Raleigh where they will meet with more than 200 state leaders.
Implicit in the Richmond Fed’s May visit to Columbia is the notion that any state without a state-based earned income tax credit may be at an economic disadvantage. Why? Because they may be missing a way to stimulate local economies by putting more cash into the hands of low-income families, who largely recirculate additional money near home which, in turn, spreads economic vitality throughout communities.
“To have an institution like the Federal Reserve to weigh in on the establishment of a state EITC carries a lot of weight,” said Bernie Mazyck, executive director of the S.C. Association for Community Development Corporations (SCACDC). “The Federal Reserve also has some of the best researchers in the country to analyze economic policy. Their endorsement of a strategy to improve a state’s economy is very important. South Carolina is fortunate to have the Federal Reserve express an interest in our state’s prosperity.”
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.
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.)
More on the May 21 meeting
The Federal Reserve’s May 21 education session is a legislative breakfast, co-sponsored with groups like the SCACDC. The meeting is expected to draw more than 100 legislators, policy wonks and community leaders to hear how the federal EITC works. The bank, which has a branch that works with communities and groups to promote economic growth, also is expected to outline how the tax credit benefits communities, said Jeanne Milliken Bonds, community development manager for the Carolinas for the Richmond Fed.
“The purpose of this is to have an economist come in and explain how it works and why it works,” she said.
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