State Rundown 5/14: Helping and Hurting Working Families

California Gov. Jerry Brown included a new state Earned Income Tax Credit (EITC) in his revised budget plan this week, responding to critics who claim he has not done enough to address poverty. Brown’s proposed EITC would provide qualifying working families in California an average credit of $460 a year, with the maximum credit for a family with three or more kids of $2,653. In order to qualify, families must earn a maximum of $13,870, about the average income of California’s bottom fifth of taxpayers but relatively low considering the median household income in California is $60,194. The governor’s proposal is much less generous than two bills under consideration in the legislature. Senate Bill 38 and Assembly Bill 43 propose EITCs with no income cutoff for eligibility. According to an ITEP analysis, SB 38 would provide an average credit of $781 to the bottom fifth of taxpayers, as well as generous credits to middle-class taxpayers. AB 43 would provide an average credit of $602 to the bottom fifth. State EITCs are one of the most successful poverty-fighting tools available to policymakers, and we hope that California adopts an EITC more in line with the legislative proposals on the table.

A Michigan representative wants to replace the state’s flat personal income tax with a progressive structure, arguing that the recent defeat of ballot measure Prop 1 shows Michigan voters reject regressive sales taxes and want the wealthy to pay their fair share. “The middle class is pretty tapped out, and obviously the working poor can’t afford to pay more,” Rep. Jim Townsend noted. “And yet we have the people in the top five percent, and specifically the top one percent, who have been doing by all accounts, extremely well.” Changing the state’s income tax structure from a flat rate to a graduated version would require a two-thirds vote of the legislature and approval by a majority of voters. Townsend’s bill is unlikely to pass the current legislature, but the people are already on board; a recent survey of Michigan voters found that 66 percent would vote for a graduated income tax.

A new report finds that voters have not punished lawmakers who support gas tax increases to fund transportation investments. The study by the American Road and Transportation Builders Association says 95 percent of Republican and 88 percent of Democratic legislators who voted to increase state gas taxes in 2013 or 2014 were reelected last cycle. Even legislators who pledged to never raise taxes were unpunished at the polls; of the 191 legislators included in the study that signed the Americans for Tax Reform (ATF) state pledge, 13 percent “ignored the ATR and supported increased revenue for transportation improvements… Only one legislator who defied the ATR and sought re-election was not returned to office.”

Following Up:
Nebraska: Lawmakers successfully overrode Gov. Pete Rickett’s veto of a 6 cent increase in the state’s gas tax over four years. The tax increase will raise an additional $25 million annually for the state and $51 million for cities and counties once fully implemented. The revenue is sorely needed, as Nebraska’s gas tax rate, adjusted to inflation, is currently at an all-time low according to ITEP data.

Kansas: Legislators in the House and Senate are gravitating toward plans to increase the sales tax to make up for the budget deficit. The plans would also implement a lower sales tax on food; Kansas is one of a few states where the full sales tax applies to food. Meanwhile, a bill to repeal Gov. Brownback’s income tax exemption for business pass-through income was approved by the House Taxation Committee.