Working Families Tax Credit under consideration in Olympia
By Jake Thomas (03/13/19)
An extra $200 or $300 would go a long way in Claudia Ruth Franson’s household.
Since her husband tore a tendon last year, he’s been placed on light duty at his warehouse job while they continue to fight with their insurance company over paying for surgery.
Franson said her husband used to bring home more than $2,000 a month (more with overtime), and she gets $400 in child support from her first marriage, but she said her husband’s paycheck has been less since being placed on light duty.
She said she’ll soon start a job as a teacher’s assistant, but in the meantime her Ford Excursion needs repairs and they’re behind on bills and rent at their house in Hazel Dell. Meanwhile, their nine kids (ranging in ages from 11 months to 15) still need clothes and lots of groceries.
“To us, it’s a big deal,” said Franson. She added that any extra money she gets would just go back into the community. “Right now, I have to go shopping,” she added.
Lawmakers are currently considering legislation meant to put some extra cash in the pockets of families like Franson’s. House Bill 1527 and its companion, Senate Bill 5810, would create the Working Families Tax Credit, which supporters say would make Washington’s tax code less regressive while helping households with the rising cost of living.
The federal government and other states have similar programs and use rely on income tax returns to distribute credits. Washington has no income tax. If the bill passes, people would apply through the state Employment Security Department, which would determine eligibility and calculate and write checks to those eligible.
While each bill has broad support in its respective chamber and the concept behind the policy has historically enjoyed bipartisan support, it comes at a time when lawmakers are considering heavy lifts around mental health, the budget and other costly priorities.
“It will be weighed with a lot of other issues,” said state Rep. Sharon Wylie, a Vancouver Democrat who sits on the House Committee on Finance that could take action on the bill on March 14.
Rep. Brandon Vick, a Vancouver Republican who also sits on the House Committee on Finance, said he questions if it shouldn’t be part of broader tax relief. But as far as policy goes, he said, “I think it at least passes the straight-face test.”
‘Most up upside down in the nation’
The Working Families Tax Credit is similar to the federal Earned Income Tax Credit, a program that provides financial support for low and moderate-income families in the form a refundable credit included on their tax return.
Created in 1975, the program has been praised by conservatives and progressives for alleviating poverty while keeping low-income parents in the workforce. Twenty-nine states and the District of Columbia, Guam and Puerto Rico have their own version of the earned income tax credit, according to the National Conference of State Legislatures.
The legislation being considered by Washington lawmakers is different than other programs. The federal Earned Income Tax Credit only applies to working parents. The Washington Working Families Tax Credit would have broader eligibility and would include individuals with no children, caregivers of relatives, immigrant workers and low-income college students.
According to research from the Washington State Budget and Policy Center, a research and advocacy organization, the Washington Working Families Tax Credit would reach about 30 percent of the state’s population, providing on average $350 for those who qualify and a maximum of $970.
More than 28,250 households in Clark County receive the federal Earned Income Tax Credit and even more would qualify for the state tax credit, according to the Budget and Policy Center.
“The great thing about this is you get a lot of bang for your buck with this bill,” said Kelli Smith, a senior policy analyst at the Washington State Budget and Policy Center.
She said the legislation would put money into the pockets of Washingtonians struggling with the rising cost of living. She said it would build on successes of the federal Earned Income Tax Credit by including a broader range of people. She also said it would bring more fairness to Washington’s tax code, which she called “the most upside down in the nation.”
According to a report by the Institute on Taxation and Economic Policy, a Washington, D.C.-based think tank, Washington has “the most unfair state and local tax system in the country,” meaning that the state’s lowest-income earners pay a greater share of their income in taxes than the most affluent.
The regressiveness of Washington’s tax system has been widely blamed on its lack of an income tax and reliance on sales tax. The report found that 20 percent of households in Washington with the lowest incomes (making less than $24,000) pay 17.8 percent of their income in state and local taxes. Of those taxes, 13.3 percent were sales and excise taxes. By contrast, the top 1 percent of Washington households by income pay just 3 percent of their income in state and local taxes, of which 1.7 percent were sales and excise taxes.
Caroline Weber, an assistant professor at the Evans School of Public Policy and Governance at the University of Washington, said there is broad research that shows that these programs improve conditions for poor people.
She said she’s not aware of any other state without an income tax implementing a similar tax credit. But she said implementing it should be straightforward by using tax data collected by the federal government to determine who is eligible and how much they’re owed. The tricky part might be “carve-outs” for caregivers and others who don’t file taxes, she said.
Budgets and bills
In 2008, the Legislature passed a similar bill but it was never funded after the state faced budget cuts after the Great Recession. The Working Families Tax Credit would replace the previous program.
While the legislative cutoff has passed for policy bills to pass out of committee, the tax credit legislation isn’t subject to the same deadline because of its direct bearing on the state’s operating budget, which isn’t expected to pass until later this session. Wylie said that because the Legislature hasn’t been presented with a revenue forecast, it’s hard to say how bills that would change the state’s tax policy will fare.
The bill’s fiscal note estimates that by fiscal year 2022, 2.9 million people will apply for the program with a benefit payout of $586 million. By fiscal year 2025 that will increase to 3.2 million with a payout of $675 million. With startup costs, the state will spend $14.5 million between 2019 and 2021.
The total cost of the bill, including benefits, will rise to $1.5 billion for 2023-2025, according to the fiscal note.
Vick said that he understands the arguments that the sales tax hurts low-income households and the bill is intended to provide relief.
“I think the counterpoint to that is if we have this money to give away, why not lower the sales tax on everyone?” he said. He also referenced how property owners recently saw large tax hikes and questioned if any relief should be spread evenly.