Expanding our state EITC is a common sense way to help Louisiana’s low-paid working families make ends meet as lawmakers pursue a partial renewal of the 2016 sales tax increase. The Legislature’s refusal to support comprehensive tax reform – along the lines suggested by the Task Force on Structural Changes in Budget and Tax Policy and others – has refocused attention on renewing part of the temporary “clean penny” of sales tax that expires June 30. It is the simplest way to address the fiscal cliff and avoid unacceptable cuts to health care and higher education. But the sales tax will hit low and moderate income households the hardest. Measured as a percentage of income, workers in the bottom income quintile (average income of $12,000 a year) would be spending six times as much of their income on the sales tax renewal than households in the top 1 percent (with a mean annual income of $1.3 million) if 3/4 cent of the temporary sales tax is renewed.
To offset the impact of a sales tax renewal, the Legislature should expand the state Earned Income Tax Credit (EITC), which benefits working families with children by letting them keep more of what they earn. Louisiana was the first Southern state to enact an EITC, but our credit is the second lowest in the country. Increasing the credit from its current 3.5 percent to 10 percent would offset most of this burden for the bottom 40 percent of income earners. Louisiana’s credit would still be less than the national median of refundable state EITCs which is 15 percent, but would boost the take-home pay of nearly 1 in 3 tax filers.
There has been substantial bipartisan momentum across the country to expand state EITCs. Three states (Hawaii, Montana, South Carolina) created a new EITC in 2017, and numerous others expanded their existing credits. This year, Missouri, Massachusetts, Maryland, and Hawaii are debating new or improved EITCs.
The EITC is effective and popular for a number of reasons at the state and federal levels:
Louisiana needs to raise revenue, but relying on sales tax without expanding the EITC is balancing the state budget on the backs of low-income residents. Expanding the state EITC would not only help to offset some of the sales tax burden on low-income families, it also would bring Louisiana more in line with other states and lift more working families and their children above the poverty line.
By Neva Butkus