NEWS: Earned-income tax credit has surprise chance

By Andy Brack, editor and publisher  |  State Rep. Gilda Cobb-Hunter for years has dreamed of South Carolina having an Earned Income Tax Credit (EITC) as a way of raising incomes for the working poor.

Now there’s a chance it could get done as a part of a broad gas tax package passed this week by the state Senate to generate much-needed hundreds of millions of dollars a year  to fix roads and bridges.

“I love it because the one thing I can say about this bill is that there is tax relief for people who really need it and that group is working families in this state,” Cobb-Hunter , an Orangeburg Democrat, said this morning.  “Hallelujah!”

The Senate gas tax bill that passed late Wednesday is a package of policy initiatives that would raise the state’s gas user fee by 12 cents per gallon.  By 2027, the proposal would generate up to $790 million a year extra for highway infrastructure.

To make the hike more attractive, GOP Sen. Larry Grooms of Daniel Island sought some tax relief.  But Senate Democrats, led by Sen. Vincent Sheheen of Camden, effectively argued a bulk of  tax relief needed to be steered to working families to offset the regressive nature of gas taxes.  (A gas tax increase is regressive because it takes a larger share of the income of a low-wage worker than a high-wage worker.)  Among the tax relief measures in the Senate bill for individuals and businesses are:

• Motor fuel user fee rebate. The plan would allow people to offset the gas tax increase with a rebate for increased fuel and maintenance expenses on their state income tax returns.
• EITC.  The state credit, explained below, would put up to $500 cash into the pockets of working families that qualified for a companion federal credit.
• Higher credit for two-wage earners. Families that have two wage earners would get a higher tax credit than currently offered.
• Higher credit for college tuition. Families with kids in college would get a larger tuition tax credit to make college more affordable for working families.
• Manufacturing property tax exemption. The exemption would lower the burden on small- to medium-sized manufacturers.
• Business personal property tax exemption. This exemption would offset some increases that disproportionately impacted businesses when lawmakers lowered personal property tax rates and increased sales taxes a few years ago.

What is an Earned Income Tax Credit?

President Ronald Reagan championed a federal Earned Income Tax credit in the 1980s as “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”  But 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.

Currently, the federal EITC steers about $1 billion a year to South Carolina as more than 500,000 South Carolina federal tax returns file annually to receive the credit.  The federal benefit, created to give people an incentive to work, 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.  Some also say that an EITC is a better way to raise family incomes than increasing the minimum wage.

For the last decade, Cobb-Hunter has pushed for the state to provide its own earned income tax credit to supplement the federal credit as a poverty-fighting measure.  Most of her proposals have called for an incremental increase up to 20 percent of the value of the federal credit.

Through the years, Cobb-Hunter has slowly been educating policy leaders, particularly Republicans, about the economic benefits of a state EITC, pulling in support from local and state United Way organizations and other groups.

Sheheen, who added the tax tool to the Senate package, joked that if anyone would have told him at the beginning of the session that a state EITC had a possibility this year, he wouldn’t have believed them.  But the measure appears to have found a home in the gas tax package as an appropriate tax relief measure at the right time, many say.

“Senator Larry Grooms did a commendable job of assuring that the bill took into consideration what might happen for those [working] families,” said Chris Kerrigan, president and CEO of Trident United Way in North Charleston.

“Trident United Way, and other United Ways from throughout the state, have pushed for a state Earned Income Tax Credit for many years. We recognize the role this credit plays as an effective anti-poverty tool and are glad to see it as part of the bill.”

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, 26 states and the District of Columbia offer an earned income tax credit. Of those, most 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.)

An uphill battle still ahead

The state EITC will be part of the debate among Senate and House members on a conference committee as they seek a compromise that will be strong enough to survive a gubernatorial veto, but broad enough to attract legislative support.

Cobb-Hunter said she knew the state EITC still faced an uphill battle in the House, particularly among the GOP House leadership.  But because it’s part of a broad tax relief proposal that had strong Senate support, it might be part of a final package this year.

“I would love to see the leadership argue against tax relief for working people when we’ve done all kinds of tax relief over the years for businesses and people over a certain incomes,” she said.  “It’s an uphill battle, but most of my battles, if not all, are uphill.

She added that adopting a state Earned income Tax Credit would be a big deal because it would help some working South Carolinians rise out of poverty.  And, “it’s a big deal because the General Assembly finally would say working people also deserve tax relief and we’re joining 27 other states in giving them a state earned tax credit to go along with the federal one.”

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