Cutting Tax Credit Hurts The Poor, Results In 'Minimal' Budget Savings Supporters Say

Alisha Blake, a single mother of three young children, earns about $25,000 annually by patching together three part-time jobs.

A state income tax credit for the working poor puts an extra couple of hundred dollars in her pocket each year. "It's easy to say it's only a few hundred dollars but that viewpoint comes from a place of privilege," said Blake, who is 31 and lives in New London. "Two hundred dollars is a lot of money to me."

Gov. Dannel P. Malloy is proposing to cut the tax credit as a way to help close an estimated $1.7 billion budget deficit. The plan has drawn harsh criticism from both Democratic and Republican lawmakers.

"The savings from it are minimal and it hits people who can least afford it," said Rep. Josh Elliott, a liberal Democrat from Hamden. "The tax credit should be expanded, not reduced."

Senate Republican Leader Len Fasano of North Haven agreed. "It certainly helps out families but when the governor decides to roll it back, it seems to me it's just raising taxes on lower income folks," he said. "I don't think that's where you want to be balancing our budget."

Blake said she views the tax credit as a signal that the government values work. "We're told more often than not that we have to pull our weight," she said. "This is an incentive for people to pull themselves up by their proverbial bootstraps."

Blake, whose children are 1, 4 and 6, works on a per diem basis as a clerical worker in the radiology department of Lawrence and Memorial Hospital. She is also self-employed as a certified birth and postpartum doula and a lactation consultant who runs support groups for new parents and nursing mothers.

"It's almost like a 'hey, thank you' from the government," Blake said. "It's like they're saying, 'You're doing all the things you should be doing,' ... and now they're going to take that away from you."

The earned income tax credit, or EITC, was created by the federal government in 1975 to provide an economic boost to low-income workers, primarily parents. Championed by both Ronald Reagan and Bill Clinton, it was conceived as a way to reward work over welfare. At least 26 states and the District of Columbia offer a state version of the credit.

Most state programs, including Connecticut's, mirror the federal program, giving state residents a little extra pay-out — $27.50 for every $100 in federal benefits. Malloy is proposing cutting the state amount to $25. Ben Barnes, the governor's budget chief, estimates the change would save the state $25 million in fiscal 2018 and $26 million in fiscal 2019, in an annual budget that tops $20 billion.

Connecticut's credit once stood at 30 percent of the federal EITC, but it has been scaled back. Still, the state's benefit is more generous than those offered by Rhode Island and Massachusetts. About 221,000 Connecticut residents received the federal credit in 2015.

"Connecticut's earned income tax credit is smart public policy that has the potential to lift children and families out of poverty, which is exactly why Governor Malloy was proud to propose and sign it into law in 2011," said Malloy spokeswoman Meg Green. "It's important to note that, nationwide, only 26 states and Washington, D.C., offer a similar credit. Under the Governor's budget proposal, Connecticut's EITC is preserved and its rate will continue to surpass the participating state average."

But supporters say Malloy's plan to shrink the credit sends the wrong message to working people while doing relatively little to reduce the deficit. "These are the folks that definitely need some help," Fasano said. "They're working, putting in long hours trying to get ahead, and now we're going to penalize them."

Elliott said beneficiaries of the tax generally spend the extra income. "Those EITC dollars go back into the economy," he said.

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