Montgomery County Poised to Expand Its Exemplary EITC

There is a strong consensus among scholars, think tanks and advocates around the country that there are concrete benefits to providing earned income tax credits (EITCs) – refundable credits (PDF) designed to offset income tax liability for low-income families and individuals. Not only has the EITC been shown to help alleviate poverty, but it has also succeeded in encouraging greater participation in the workforce, improving infant health, and boosting school achievement, among other things.

While most discussions are about the federal and state EITCs, there are two local EITCs that are often overlooked, including Montgomery County, Maryland’s Working Families Income Supplement (WFIS). Originally introduced in 2000 as a tool to help the county’s poorest residents cope with an extremely high cost of living, the WFIS is one of only two local EITCs in the country (the other is in New York City).

When originally implemented in 2000, the WFIS was set at 100 percent of the state EITC – that is, if a worker received $600 from the Maryland EITC, he or she would also receive $600 from the county. This supplement provided low-income Montgomery County families with the most generous combined EITC in the country. It also gave these households the ability to pay for basic day-to-day necessities like child care, school books, utility bills, and groceries – and most of all it helped reduce poverty and promote upward mobility. (Other reference materials on the WFIS can be found here.)

Through the mid-2000s, the number of people living in poverty declined even as unprecedented numbers of people moved into the county. When the Great Recession began to take hold in late 2007, however, these advances were reversed. As jobs were lost and incomes fell, Montgomery County experienced a spike in poverty even as the Washington, DC region as a whole weathered the recession better than most.

In a case of terrible timing, as county tax revenues began to fall, the Montgomery County Council decided to save a little money by scaling back the WFIS to 72.5 percent of the state EITC in FY 2011, 68.9 percent in FY 2012, and 72.5 percent in FY 2013. This decision only made things worse for low-income families: now, not only were they facing wide-spread layoffs prompted by a weak economy, but they were seeing a significant cut in a critical source of income.

Now, however, members of the Council have proposed a plan that would restore the 100 percent credit that was in place for nearly a decade.

Introduced in March and having undergone public hearings in July, Expedited Bill 8-13 (PDF) would gradually return the WFIS to 100 percent of the Maryland credit by Fiscal Year 2016. This expansion is estimated to help over 30,000 low-income households meet their basic day-to-day needs at a cost to the County of $3 million.  (For context, Montgomery County tax revenues are projected to grow by $30 million a year for the foreseeable future – even when factoring in the possible impact of the federal sequester).

With a committee hearing scheduled for early October, the Council members promoting the bill have just under two months to garner support and move its restoration forward. For over a decade, the Council has demonstrated its dedication to the needs of its low-income residents as it championed one of the most forward-looking income tax credits in the nation.  By restoring the Working Family Income Supplement to 100 percent of the state credit, the Council would be offering critical help to its most vulnerable residents, providing a ladder for upward mobility, and adding a boost to the local economy.

For more information on the structure and benefits of Earned Income Tax Credits:

Rewarding Work Through Earned Income Tax Credits

Institute on Taxation and Economic Policy, September 2011

“Low-wage workers often face a dual challenge as they struggle to make ends meet. In many instances, the wages they earn are insufficient to encourage additional hours of work or long-term attachment to the labor force. At the same time, most state and local tax systems impose greater responsibilities on poor families than on wealthy ones, making it even harder for low-wage workers to move above the poverty line and achieve meaningful economic security. The Earned Income Tax Credit (EITC) is designed to help low-wage workers meet both those challenges. This policy brief explains how the credit works at the federal level and what policymakers can do to build upon it at the state level.”

Earned Income Tax Credit Promotes Work, Encourages Children’s Success at School

Center on Budget and Policy Priorities, April 9, 2013

“The Earned Income Tax Credit (EITC), which went to 27.5 million low- and moderate-income working families in 2010, provides work, income, educational, and health benefits to its recipients and their children, a substantial body of research shows. In addition, recent ground-breaking research suggests, the EITC’s benefits extend well beyond the limited time during which families typically claim the credit.”

Ten Years of the EITC Movement: Making Work Pay Then and Now

Brookings Institution, April 18, 2011

“The Earned Income Tax Credit (EITC) … has grown to be called the nation’s largest federal anti-poverty program. The EITC has had significantly beneficial effects for its recipients and their communities. These include encouragement of work, reduction of poverty, and boosting of local economic activity.”