Four Victories for Working Marylanders: The 2014 Legislative Session in Review

With the 2014 legislative session in the books, it is time to assess the General Assembly’s achievements as well as take stock of the work left undone. Today, we focus on several measures the legislature passed that will help move the needle toward broadly shared prosperity in Maryland.

1. Minimum wage increase. The General Assembly’s high-profile passage of legislation to raise the minimum wage in Maryland to $10.10 by 2018 will benefit nearly half a million workers and their families as well as boost the state’s economy (though compromises made by legislators will leave others behind). Maryland is now a leader in the nationwide effort to lift the stagnated earnings for workers, becoming the second state after Connecticut to raise the minimum wage to $10.10 per hour.

2. Expansion of tax credit for working Marylanders. Less noticed, but just as important, the expansion of Maryland’s Refundable Earned Income Tax Credit (EITC) to 28 percent of the federal credit from 25 percent will benefit over 422,000 Maryland households and lift many Marylanders out of poverty. The EITC enjoys bipartisan support because it encourages work, promotes personal responsibility, and helps struggling families get by. 

3. A budget that protects Maryland workers and businesses.  Lawmakers in Annapolis passed a $39 billion budget while minimizing deep or unnecessary cuts to important programs that benefit working Marylanders. The General Assembly began their work under the cloud of reduced revenue estimates that were cut even further in the middle of the session, so it is important to recognize their efforts to balance the budget while avoiding damage to important programs that benefit working families and businesses alike.

4. Stopping corporate tax giveaways. Success is not just about passing good legislation but also preventing harmful laws from enactment. This session, the General Assembly wisely blocked legislation that would cut taxes for large, multistate corporations (though they did pass a misguided tax cut for the top 3 percent of estates). And – though it came down to the wire – lawmakers did not allow themselves to be blackmailed into providing more film tax credits for out-of-state production companies.

The victories achieved during the 2014 legislative session will help improve the lives of Marylanders and strengthen the state economy. Of course, important work remains to foster broad prosperity in Maryland. Check back tomorrow for our discussion of the work that remains in the 2015 legislative session and beyond. 

The EITC Cannot Fight Poverty Alone

The Earned Income Tax Credit (EITC) is a powerful tool for helping low-income working families, but to effectively raise Marylanders out of poverty and foster broad-based prosperity, it must work alongside other measures, including a boost in the minimum wage.

Recently, some policymakers in Maryland have portrayed  the EITC as some kind of super-policy that can fight poverty on its own, but  this is not the case.

The EITC – a federal tax credit that Maryland supplements with a state EITC -- makes low-wage work more viable for families by offsetting some of the taxes they pay and boosting their income. However, as the non-partisan Center on Budget and Policy Priorities pointed out this week, there are some things that the EITC cannot do, like helping people who are out of work or unable to work, or helping the poorest families that do not make enough to qualify for the credit.

In addition, because families reap the benefits of the EITC once a year when they file their taxes, it does not help them when they may need a boost the most, like when the monthly rent is due or they need to repair the car they use to get to work. More broadly, because the EITC is based on wages, it does not automatically expand to stabilize the economy during recessions, the way that other services, like nutrition assistance, do.

The EITC also does not provide workers with health insurance.

Because of these limitations, we need other policies to complement the EITC, including nutrition assistance, access to health insurance through programs such as Medicaid, and unemployment insurance to see individual workers through job losses and help the economy as a whole through downturns. And, of course, a robust minimum wage that keeps up with the cost of living and allows workers to support themselves and their families.

Maryland policymakers need to recognize the importance of making these programs and policies work together on behalf of working families. For instance, as they consider legislation that would make the state’s EITC more generous, state lawmakers also should finish the task of raising the minimum wage. That would build on the strides Maryland has made recently in improving access to health care by expanding Medicaid and working to implement the Affordable Care Act.

It’s fortunate that so many policymakers agree the EITC is an important and effective way to provide economic assistance to working families in Maryland. The current proposal to expand the state EITC enjoys bipartisan support in the General Assembly, and the EITC has also won praise from conservative lawmakers such as U.S. Rep. Paul Ryan. Unfortunately, some of this acclaim portrays the EITC as an alternative to other policies such as raising the minimum wage, rather than as a supplement to those things.

The EITC is an important policy, but we should not rely on it to do everything. There is no silver bullet capable of singlehandedly ending poverty. Instead we need lots of programs and ideas to peck away at it from every angle.

Earned Income Tax Credit Legislation Would Improve an Already Effective Tool

Maryland’s General Assembly has a unique opportunity to help the working poor in a variety of ways this session—including by expanding the refundable portion of the state’s Earned Income Tax Credit.

On Wednesday, the Senate Budget and Taxation Committee heard testimony on a bill to expand Maryland’s Earned Income Tax Credit (EITC), which fights poverty while encouraging people to work more hours in low-wage jobs. If passed, the bill would increase Maryland’s refundable EITC to 28 percent from 25 percent of the federal EITC, giving an additional boost to 422,019 Maryland households and lifting more Marylanders out of poverty. A portion of Maryland’s EITC is refundable, meaning that if it exceeds the amount of taxes owed, the balance is returned to the taxpayer.

By providing a credit that increases as earnings increase up to a certain amount, the EITC encourages work. It is also an effective tool to decrease inequality and lift families out of poverty by leaving low-wage workers with more income to spend on food, clothing and other necessities.

To claim the federal EITC in tax year 2013, a taxpayer must have a modified federal adjusted gross (earned) income of less than $14,340 if the family has no dependent children, $37,870 with one dependent child, $43,038 with two dependent children, and $46,227 with three or more dependent children. The Center on Budget and Policy Priorities provides a useful tool to calculate the expected EITC for households of various sizes and income levels.

Maryland’s Refundable Earned Income Tax Credit amplifies the federal EITC. Maryland’s refundable EITC currently provides a credit for up to 25 percent of the federal EITC, which is $2,300 on average. Below, a chart from Maryland’s Department of Legislative Services illustrates the relationship between the state and federal EITC and earnings for a single parent with two children.

Source: Maryland Department of Legislative Services

The darkest colored area at the bottom represents Maryland’s refundable EITC. By increasing from 25 percent of the federal EITC to 28 percent, Maryland’s refundable credit will do more for working Marylanders. Given the average EITC amount and the number of households that benefit from the EITC, this expansion could result in an additional $19 million for working families in Maryland.

Further, because Maryland’s refundable EITC is tied to the federal credit, any expansion to the federal credit will only increase the power of Maryland’s  EITC. Earlier this week, we highlighted a promising proposal in President Obama’s budget that would expand the federal EITC to many more childless adults (very few of whom currently qualify). Taken together, these proposed expansions to the federal and state EITCs will provide needed assistance to Maryland’s workers.

The EITC gives low- and moderate-income workers the opportunity to catch up on bills and debts, and to begin accumulating savings. The increased income the EITC provides workers also benefits local economies as families quickly spend the funds on necessary household expenses. More broadly, studies have shown that the EITC helps move young adult men into the workforce and boosts their effective income, and may  improve marriage rates,  reduce crime, and reduce incarceration.

Finally, the EITC complements another important issue on the 2014 legislative agenda in Maryland – boosting the minimum wage. Workers earning the minimum wage would greatly benefit from  being able to keep more of their increased earnings due to an expanded EITC, and that would also help Maryland’s economy.

Federal Earned Income Tax Credit Expansion Would Help Maryland’s Workers and Economy

Recent weeks have seen promising developments at the state and national level regarding the Earned Income Tax Credit (EITC), an important credit for low and moderate income working people. The EITC helps offset federal payroll and income taxes, reduces poverty and income inequality, strengthen work incentives, and gives a boost to Maryland’s economy.

At the federal level, President Obama’s Fiscal Year 2015 budget calls for the EITC to include more adults without children, who currently receive little or nothing from the EITC. Doing so would help 210,000 people in Maryland by substantially increasing their after-tax incomes and incentive to work. The President’s budget would also make workers between the ages of 21 and 25 eligible who currently are excluded. This is especially important for recent graduates with student debt and other young people who face multiple challenges when beginning their working careers, helping them gain a foothold in the economy.

Currently, a childless adult working full time at the minimum wage pays significant federal income and payroll taxes, but receives an EITC of less than $30. For families with children, by contrast, the EITC, when combined with the Child Tax Credit (CTC) is a powerful anti-poverty tool. Between 2010 and 2012,  the two credits lifted an average of 126,000 Marylanders--including 64,000 children—out  of poverty each year.

The President’s proposal will also significantly help low-income working families with children by making several temporary improvements to the EITC and CTC permanent. These improvements, first enacted in 2009 and slated to expire in 2017, have made more low-income working families eligible and boosted the credit for many others. Last year, 154,285 families in Maryland benefited from these improvements, and on average each year over 2009 to 2012, they lifted an another 14,200 Marylanders, including 8,400 children, out of poverty.

The EITC has a proven track record of boosting employment among parents. In addition, research has shown that the EITC also has important positive long-term impacts on children — helping them to do better in school and boosting college attendance rates. It would also give our economy a boost. Eligible workers will get to keep more of what they earn and, in turn, spend those dollars here in our state.

Congress should take the next step and approve the President’s proposal to improve these important tax credits to encourage work, reduce poverty, and invest in Maryland’s future.

Maryland is also one of 25 states to offer a supplemental Earned Income Tax Credit. Check back here for more on legislation in Annapolis to expand this important credit for working Marylanders.

EPI Report Shows MD Offers Better Climate for Workers than Many States, But Challenges Remain

Today, the Economic Policy Institute released a report describing actions in state legislatures across the country that have been detrimental to the ability of residents with moderate and low incomes to earn a decent living. EPI describes how this policy agenda has been financed by corporate interests and serves to drag down wages, lower labor standards, and erode employee protections for union and nonunion workers alike.

Fortunately, many of the most harmful developments outlined in the report - including laws restricting the minimum wage, removing regulations on child labor, and imposing new limits on benefits for the unemployed – have not taken place here. Rather, Maryland has enacted policies that improve the economic security of residents. These efforts include protecting Marylanders from catastrophic health expenses by implementing the Affordable Care Act and expanding Medicaid as well as providing tax credits and job training for workers through the state’s EITC and EARN Program.

However, Maryland needs to continue to enact policies that provide economic opportunity and overcome challenges to doing so. For example, EPI’s report notes that corporate lobbies have successfully defeated efforts to establish paid sick leave in cities and states across the country, including Maryland. In the coming legislative session, state lawmakers have the opportunity to enact paid sick leave as well as join other states across the country in raising the minimum wage. In this regard, EPI’s report serves as a useful reminder that the policies that provide security and opportunity for Maryland’s workers must be protected from those that seek to undermine them and that citizens and policymakers must continue to push for measures that help raise the living standards of all Marylanders.   

The Week Ahead

Last week we blogged about Senate budget action, hunger in Maryland, and the good and bad news about transportation. Neil Bergsman also appeared in a Washington Times story about the gas tax. MBTPI also submitted Senate testimony in support of a Earned Income Disregard pilot program, and expanding education funding.

For the week of March 25th to March 31th:

• Both houses have passed their versions of the operating budget. Work now moves to conference committee, to iron out differences between the two versions of the bill. The constitutional target for passing the operating budget is next Monday, April 1st (the 83rd day of the session). Work continues on the capital budget.
• The House passed the transportation finance package last week. Action now moves to the Senate (SB 1054). MBTPI supports the Transportation Infrastructure Investment Act of 2013, but only if it is paired with an expansion - by amendment or a separate bill (i.e. SB 703) - of the refundable portion of the state earned income tax credit.