Several local Colorado community-based organizations, including, but not limited, to the Colorado Fiscal Institute, the Bell Policy Center, the Colorado Center on Law & Policy, the Colorado Participation Project, Project WISE, the Colorado Progressive Coalition, 9to5 Colorado, Denver Asset Building Coalition, COLOR, Together Colorado, the National Council of Jewish Women, the Women’s Lobby of Colorado, and the Women and Family Action Network - WFAN (which was established by the Women’s Foundation of Colorado in 2005), are accelerating their efforts to encourage Coloradans to support a new piece of legislation this spring. The proposed law is called the Working Family Economic Opportunity Package of 2013. What all of these organizations have in common is that each works with lower income working families. The bill is likely to be introduced in committee this week.
Senate Bill 13-001 puts cash in the pockets of Colorado working families. Interestingly, there is a reason this Senate bill earned the honor of being named number one (i.e., SB001). This reason is because its sponsors, Senators John Kefalas and John Morse and Representative Daniel Kagan, all believe this law exemplifies the State Legislature’s commitment to expanding economic opportunity, stability and responsibility for Coloradans in this session. SB13-001 would create a permanent, state Earned Income Tax Credit (EITC) and Child Tax Credit in our state. Eligible Coloradans can already claim the federal EITC.
According to the tax policy attorney of the Colorado Fiscal Institute, Ali Mickelson, who I interviewed on March 16, 2013, "The EITC and Child Tax Credit are tools the state can use to put money directly into the pockets of working Coloradans. These credits are investments in families that encourage and reward work, while increasing the lifetime success of children."
“The federal CTC and EITC have been successful at reducing poverty, increasing childhood achievement and creating stability in working families. Colorado can build on the success of the federal credits by passing SB 13-001 and creating state-level EITC and CTC tax credits."
What is the EITC?
The EITC is the federal government’s largest cash-assistance program for low-income families. (source: Colgate University, December 2012, “The Earned Income Tax Credit for Single Mothers: Insurance Without Disincentives?”) Approximately $48 billion was allocated in the U.S. in 2008 through the federal EITC, an amount almost triple the $17 billion spent on traditional welfare programs in the same year. (To give you an idea of scope, the 2013 federal sequestration cuts in the news today amount to $85 billion.) In 2008, approximately 24 million households received the EITC, representing 21.3% of all American households. This is in large part, because of the eligibility criteria of the EITC.
The researchers at Colgate wrote:
“For example, families with two children earning less than $41,646 (in 2008), an amount relatively close to overall U.S. median household income ($52,000 in 2008), could qualify for the EITC.”
Why does this long list of community organizations advocate supporting SB13-001?
These groups all believe this bill would have a big positive impact on our state. Among its benefits are:
- Increasing a working family’s paycheck is the single most effective way to create stability in families and opportunities for children.
- Research shows that increasing a family’s household income while they have young children not only improves their children’s immediate educational outcomes, but also is associated with longer schooling, more hours worked, and higher earning in these children’s adulthood.
- Studies show that boosting a family’s earnings by just $1,000 through the EITC and Child Tax Credit increases the probability of children going to college, earning more wages as adults, and improving the quality of the neighborhood in which the children live.
Single mothers and EITC
The majority of EITC recipients, according to researchers at Colgate University, are in households headed by an adult without a college education. The EITC is likely to play a substantial role in insuring young American households, particularly single mothers, against several of the largest risks that they face. Further, single mothers represent the largest recipient group of the EITC, representing 31% of EITC recipients (Meyer, 2007). Of note, research showed labor force participation rates for single mothers with two or more children are 11 percentage points higher, as a result of the existing federal EITC structure. All single mothers increase their labor force hours, as a result of the EITC. That translates to a powerful impact on our economy and on the futures of their children.
According to Bruce D. Meyer and Dan T. Rosenbaum, authors of “Welfare, The Earned Income Tax Credit, and the Labor Supply of Single Mothers,” published in the Quarterly Journal of Economics (August 2001):
"During 1984-1996, welfare and tax policy were changed to encourage work by single mothers."
The EITC was expanded, welfare benefits were cut, welfare time limits were added (currently recipients of Temporary Assistance for Needy Families – TANF have a lifetime “clock” on this assistance of 5 years total), and welfare cases were terminated. During this same time period, there were unprecedented increases in the employment and hours of single mothers. The research demonstrates that a large share of the increase in work by single mothers can be attributed to the EITC and other tax changes, with smaller shares for welfare benefit cuts, welfare waivers, training programs and access to child care programs.
In other words, between 1984 and 1996, tax and transfer policy were retooled to encourage work by single mothers. Single mothers responded to these incentives by working more, especially after 1991 and especially those with children under age six (Meyer and Rosenbaum, 2001).
Bottom line: this is an issue that has a huge impact on the economic self-sufficiency of single mothers in Colorado.
The Coloradans who are eligible for the federal EITC today
Nearly 950,000 people in our state are eligible for the EITC, of these 420,030 are children who live in families who qualify. The median adjusted gross income of these families amounted to $13,099 (2010). Just over 25% of the families who qualify for the EITC receive food stamps or the Supplemental Nutrition Assistance Program (SNAP). Thirteen percent work in Retail, eleven percent in Construction and 10% in Health Care. Eighty percent speak English as their first language, while another 14.4% speak Spanish as their first language. Sixty percent of these families are Caucasian; 27.5% are Latino/a; and the rest are other ethnicities.
The role of the EITC on the economy
Implementing a permanent, state EITC and Child Tax Credit would have a tremendous impact on the economy people want in the future. Studies find that families receiving the EITC typically spend their tax refunds on common monthly expenses and building up savings and purchasing or maintaining assets, such as cars and basic durable goods.
Often advocates of SB13-001 hear the question: what would be the impact of this legislation on the Colorado state budget? Therefore, with the latest forecast for the economy and state revenue due out this Monday, all eyes will be on this report.
“The art of taxation consists of plucking the goose so as to obtain the most feathers with the least hissing.” – Jean-Baptiste Colbert