Southwest Washington Democrats have signed on to a bill that would refund an average of $350 as an earned income tax credit annually to about a million low- and middle-income households across the state.
The legislation, called the working families’ tax credit, would make the state’s tax system more equitable and drive economic growth by boosting the income for a million households, said Kelli Smith, Senior Policy Analyst with the Washington State Budget and Policy Center, a nonpartisan research and policy organization.
Under the current tax code, low-income households pay up to 18 percent of their income in taxes, whereas the highest earners pay less than 3 percent of their income, Smith said.
“Washington state has been consistently shown to have the most regressive tax system in the nation,” and this legislation would help fix that, state Rep. Brian Blake, an Aberdeen Democrat, said Friday.
The bill supplements the federal earned income tax credit, which provides tax breaks to qualified households at a fixed percentage of their earnings dependent on their income, marital status and number of children. The legislation is designed to create a remittance on state and local sales and use taxes. Applicants would have to apply to the state Department of Commerce.
Because the refund percentage is fixed, the benefit increases as income increases until it reaches a maximum salary, at which point the tax credit is phased out. (For a single person with one or fewer kids, the maximum is $18,660; for a married person with with one or fewer kids, the maximum is $24,350.)
“For every additional dollar you make, you get higher credit,” Smith said. “The motivation was to create an incentive to work more and not lose benefits.”
A single or married person with two or more kids would receive an additional 15 percent of their federal tax credit benefit under the state proposal.
The state proposal would also be expanded to include other groups that don’t qualify for the federal program, such as people ages 19 to 69 who don’t have children, family caregivers, students in higher education who are eligible for the state need grant and workers who file federal taxes using an individual taxpayer identification number.
About 30 percent of tax filers around the state, or a million households, would receive a tax credit, Smith said.
It is unclear at this time how many people in Cowlitz County, which has a high rate of poverty, would benefit from the legislation.
“When we go out into the community and ask people what they need, they say they need cash to settle their own problems. … That could be car repairs, groceries, not going into debt with a payday loan. We hear $350 makes a difference in the lives of folks who would receive this,” Smith said.
However, the price tag could be a problem. The Budget and Policy Center has estimated that the program would cost the state about $400 million a year.
“We haven’t heard a lot of philosophical opposition (to the legislation). Mostly the challenge we hear is they want to know how to fund it,” Smith said.
Longview Democrat Sen. Dean Takko said the legislation was a “good idea,” but funding it may be difficult.
“Anything we can do to help childcare and low-income people, I’m for it,” Takko said Friday. “But $400 million is a big bite when you consider the other big bites we have to take,” such as school funding and mental health measures. (Still, the proposal would cost only about 1.5 percent of the $54.4 billion two-year budget Gov. Jay Inslee has proposed for 2019-21.)
Sen. John Braun, a Centralia Republican, called the legislation “an interesting idea,” but said it was expensive to finance and administer.
“I appreciate the effort,” he said Wednesday. “It’s one option, but it’s not the only option to lift up disadvantaged folks in our state. I think we need to pay our current bills and sustain our current services before we take on something this large.”
The House bill is scheduled for an executive session in the Finance Committee on Thursday. The Senate Committee on Ways and Means held a public hearing on the bill on Feb. 21. Takko said it is common for budget-related bills to sit in Ways and Means for long periods while the Legislature discusses the budget.
Blake said he looks forward to debating the legislation further once budget discussions get into full swing.
“That’s a lot of money and whether it can be accommodated in this current budget climate is unknown,” Blake said. But $350 more annually is “a few more groceries a week for these families.”
Smith said that extra income for working families will circulate throughout the local economy, which can drive growth.
“I don’t think (this legislation) is a bad idea, but I also don’t think it’s a bad idea to do some things in our district to get some jobs,” Takko said. “If you have jobs that pay a decent salary, you don’t worry about a lot of these things.”