SF Chronicle Op-Ed: Newsom’s bold proposal — a cost-of-living refund to make California affordable
Op-ed by Natalie Foster of the Economic Security Project and Chris Hoene of the California Budget & Policy Center (01/14/19)
Three-quarters of workers report living paycheck to paycheck at least some of the time. Half of households are unable to cover an emergency $500 expense. Housing costs in California just keep accelerating, hitting an all-time high in 2018. The basic building blocks of middle-class life — child care, health care, a college education — have become like luxury goods: high-priced and available to very few.
A cost-of-living refund to put money back in the pockets of low-income Californians who need it most is one solution. Delivered as a tax refund based on earnings, the Earned Income Tax Credit is one of the most powerful mechanisms to address affordability and inequality, while giving people the ability to put resources toward their most pressing needs. Over the past three years, California took the important first steps of establishing and then expanding a state credit to complement the federal credit, and is on track to refund $400 million to about 2 million households for the 2018 tax year.
But we can do more to make sure that that tax credit reaches more Californians. Gov. Gavin Newsom’s budget proposal calls for a “Working Families Tax Credit,” a dramatic expansion of the CalEITC, taking a decisive step forward on the path to economic stability. We applaud the governor for his staunch commitment to addressing affordability by prioritizing this issue in his first budget.
The governor’s budget proposal more than doubles funding for CalEITC to $1 billion, expanding the reach of the credit to those earning up to $15 an hour and including an extra $500 for families with young children. The proposal addresses affordability head-on by closing the gap for those who earn “too much” to qualify for other assistance but not enough to make ends meet. And the extra credit for families with young children helps during the critical early childhood years, when the affordability crisis hits many families hardest.
The proposal aims to include an option for the credit to be distributed monthly rather than as an annual lump sum, becoming the first state to offer a monthly option for the earned income tax credit. A monthly credit is both revolutionary and just common sense: Bills and budgets are set monthly. A monthly credit gives people a chance to feel it working in their lives, whether to cover an unexpected expense or to sock away a little bit of savings.
Gov. Newsom’s new proposal is a powerful expansion and an important next step in making California more affordable. We recently released a research paper that explores expanding and modernizing the CalEITC in three significant ways:
Pushing eligibility of the credit further into the lower middle class to cover close to half the households in the state, including 5 million children;
Expanding eligibility to include family caregivers and low-income students to recognize their vital but unpaid work; and
Making the distribution monthly.
Other opportunities exist for achieving full participation by eligible workers such as automatic filing and including all workers who file taxes.
Our analysis projects that a full expansion would significantly cut the state’s poverty rate and help close the widening racial wealth and income gap.
It would also offer much-needed stability to families living on the brink. A full expansion would require significant new revenue, asking the wealthiest to pay their fair share of taxes, and continued leadership by Gov. Newsom in the Legislature or ultimately at the ballot.
Newsom’s proposal plays into a recent trend of Californians stepping out on putting more money in working people’s pockets. U.S. Sen. Kamala Harris’ LIFT the Middle Class Act, standing for Livable Incomes for Families Today, would provide between $3,000 (for individuals) to $6,000 (for couples) a year and extend all the way up to families earning $100,000.
Rep. Ro Khanna, a Democrat who represents the South Bay, has his own proposal to expand the federal EITC and broaden eligibility. Although each policy differs slightly, taken together we see efforts to dramatically increase the amount of money low- and middle-income earners would see as a result of their work.
Cash credits for working people have been hailed as a “bold” idea in the run-up to the 2020 election. With Gov. Newsom’s proposal, Californians are leading the way on creating an economy that works for everyone.
For the millions of Californians who struggle to make ends meet, the governor’s announcement couldn’t come soon enough. This bold proposal is an opportunity for all Californians to raise their voices in support of closing the affordability gap in our state.