Poor State Families Need A Tax Credit - And Child Care
January 17, 2006
Commentary By Jim Horan
There's a lot of hand-wringing these
days about the state of Connecticut's economy: We're near the bottom
in job growth, our population is stagnant, middle-class jobs with
benefits are disappearing, and 66,000 Connecticut families are working
hard but earning so little they can't make ends meet.
We know the problem, but lack concrete
solutions. In fact, there are two things that the state could do
now that would encourage people to work and boost employment in
First, Connecticut could follow the lead of the federal government
and create a state Earned Income Tax Credit. The federal tax credit,
which was created under President Gerald Ford and grew under Presidents
Ronald Reagan and Bill Clinton, encourages low-wage people to work
by offering a credit on their federal income tax return. Families
who have children and who earn up to about $37,000 annually are
eligible for a credit. Families earning between $11,500 and $16,000
qualify for the biggest credit - $4,400. Reagan called the Earned
Income Tax Credit "the best anti-poverty, the best pro-family,
the best job creation measure to come out of Congress."
Eighteen states, including most of
our neighbors, have recognized the effectiveness of the tax credit.
They offer tax filers who qualify for the federal credit a smaller
break on their state taxes.
A 20 percent credit would cost the
state about $50 million. Low-income people would spend that money
in their community. That would boost the economy, especially in
low-income urban neighborhoods. Some of the money would go to help
people pay for college, a car to get to work or even a home.
But how to pay for it? Right now, the
state has a $500 million-plus budget surplus. The governor and legislators
are talking about cutting the corporate tax surcharge - a good idea
to encourage businesses to stay and grow in Connecticut. But while
we're helping corporations, let's help people at the other end of
the income scale - hard-working, low-wage families with kids - with
a state Earned Income Tax Credit.
This is a great time to institute a
state tax credit. Because it is a tax expenditure, it won't count
against the state spending cap, which limits increases in spending.
A second idea to encourage work is
to restore funding for the state's child care subsidy program. Child
care is the single biggest expense for parents with young children
- even higher than housing, according to a new state report on how
much it costs to be self-sufficient.
For many parents who will get low-wage
jobs, it simply isn't worth it to enter the workforce. But it would
be if the state subsidized their child care costs. And it would
be a solid investment in our future if care is of high enough quality
to get kids ready for school success.
Following welfare reform in 1996, policy-makers
recognized this and put a lot of money into child care subsidies.
In Connecticut, however, funding dropped from $120 million in 2002
to $69 million this year.
Restoring at least part of this funding
would allow more parents to go back to work, and help employers
who need a growing workforce. Again, there's the question of where
the money would come from.
The most likely source is federal welfare
funds. The state diverts a lot of this money into the Department
of Children and Families and other state agencies. This is permitted,
but it would make a lot more sense to spend the money on programs
that help keep families on the job and away from the DCF.
We all want the state's economy to
grow. It's important to make sure, as we think about how to do this,
to ensure that low-wage workers are part of the equation.
Jim Horan is executive director of
the Connecticut Association for Human Services, an advocacy group
based in Hartford.
Reprinted with permission of the Hartford Courant.
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