Too many Georgians today work hard and play by the rules but fail to get ahead. Incomes are down, wages are flat and expenses are rising for low- and moderate-income families statewide. For them, state and local taxes are more than just the nuisance payment they represent to higher earners. The yearly tax bill for working families can mean the difference between putting food on the table, making rent or having cash for middle-class investments like owning a reliable car to get to work. But state lawmakers can change this when they return to work in 2016 by passing a proven reform that cuts taxes from the bottom up: a state Earned Income Tax Credit (EITC).
Twenty-six states and the District of Columbia offer their own EITCs, modeled off a federal credit of the same name. The policy is designed to cut taxes for cashiers, teaching assistants, home health aides and other low-wage workers to provide a modest wage enhancement for families striving toward the middle class. The credit is available only to people who work and it grows in size, up to a point, as wages rise. That encourages people to stay employed and work more hours, rather than rely on public assistance.
These tax credits enjoy a long history of support from both sides of the partisan divide, with endorsements from Rep. Paul Ryan, the U.S. Chamber of Commerce and President Barack Obama. President Ronald Reagan once said of the federal EITC, “Giving a leg up to those struggling to move up is what America is all about.”
Why should Georgia adopt the policy? We make the case in our report released today, “A Bottom-Up Tax Cut to Build Georgia’s Middle Class.” It describes how enacting a Georgia EITC would:
- Provide a bottom-up tax cut to more than a million Georgia households. Nearly 1.1 million Georgia households, or 28 percent of all Georgia income tax filers, received the federal EITC in 2013. These same taxpayers would benefit from a Georgia add-on credit. The largest value from an EITC goes to families making about $10,000 to $23,000 a year, though families making up to about $38,500 to $52,500 can still benefit (depending on number of children).
- Help Georgians with jobs afford the basics and work their way into the middle class. The EITC helps families afford basic necessities like food and child care, as well as larger investments that smooth the path to the middle class like a down-payment on a new home. The average federal EITC for Georgia recipients was $2,700 in 2013, so a Georgia EITC set at 10 percent of the federal credit would deliver an average of about $270 a year to those families. Working Georgians in fields as diverse as health care, food service, construction and retail stand to gain.
- Boost small businesses, local economies and Georgia’s future workforce. A state EITC could pump millions of dollars into Georgia communities by giving customers more disposable income and helping local shops and entrepreneurs succeed. It could also strengthen the foundation for young people who will become Georgia’s future workforce, since research finds that children whose families receive more income from the EITC are likelier to excel in school, graduate high school, attend college and earn more as adults.
Tax reform is likely to be front and center during Georgia’s upcoming legislative session. House leaders introduced a large-scale tax proposal earlier this year, and Georgia’s tax-writing committee is holding hearings on it this summer – with the first hearing scheduled next Tuesday, Aug. 18. Groups from across Georgia are likely to weigh in during the tax reform process with various ideas and proposals for improvement.
GBPI expects to participate in that conversation and a key priority is for Georgia to adopt its own EITC. It’s an affordable pro-family reform that keeps people on the job, expands the middle class and strengthens businesses and local economies. It’s a smart way for Georgia legislators to chart a better course forward for the state.