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.

Poverty and income essentially unchanged

Maryland's poverty rate and median household income were essentially unchanged in 2012, according to new data from the American Community Survey.

• 2012 MD Poverty Rate: 10.3 percent
• 2012 MD Median Household Income: $71,122

The poverty rate has steadily increased since the beginning of the Great Recession, from 8.1 percent in 2008 to its current peak. This mirrors the story in most of the rest of the country, as poverty remains high despite the economic recovery. I suspect this graph has something to do with it.

Maryland continues to have the highest median household income of any state at more than $71,000 (though we also know that 35 percent of Maryland households make less than $50,000). The state's median household income is about $1,000 more (in 2012 dollars) than it was in 2000.

Our neighbors to the south actually saw a decline in median household income, so much so that Virginia is now about $1,000 below (in 2012 dollars) their 2000 level. Virginia's poverty rate is also higher, at 11.7 percent in 2012.

CEOs’ favorite states: lower incomes, less education, less health coverage

Big business and anti-tax groups have been making hay out of a story in CEO Magazine in which a survey of CEOs ranked Maryland 41st in business climate. But look closely: a lot of the things that made CEOs downgrade Maryland (and the other states that ranked low in this poll) are actually things you would want for yourself and your family.

The results are based on a survey of over 700 CEO’s on the subjects of “Tax and Regulation,” “Workforce Quality,” and “Living.” So, what have these CEO’s told us about the states they like and don’t like? Here are their top 10 and bottom 10 states:

CEO Magazine Top 10	CEO Magazine Bottom 10
1. Texas	50. California
2. Florida	49. New York
3. North Carolina	48. Illinois
4. Tennessee	47. Massachusetts
5. Indiana	46. New Jersey
6. Arizona	45. Connecticut
7. Virginia	44. Michigan
8. South Carolina	43. Hawaii
9. Nevada	42. Pennsylvania
10.Georgia	41. Maryland

To find out how well the CEOs opinions tracked with the actual economic data, I looked at some indicators related to these twenty states. Median household incomes. Growth in per capita incomes. Poverty rates. Health insurance coverage. Education attainment.

 

Sources: CEO Magazine, US Census, MBTPI calculations

 

In each of these indicators, CEO Magazine’s bottom 10 states outperform their top 10. The blue bars on the graph show the average ranking of CEO Magazine’s top 10 states on these indicators. The green bars show the average ranking of CEO Magazine’s bottom 10 states. For example, the top 10 states, as rated by the CEO’s actually averaged the 28th highest median household income. Household incomes in the states ranked in the bottom ten were much higher – ranking 11th on average. In fact, CEO magazine’s 10 least favorite states included 6 of the 10 states with the highest incomes.

And it goes on like that for category after category. The states ranked lowest by CEOs had faster income growth, lower poverty, more health insurance coverage and more college grads. These are all things we want for ourselves and our families: we want to make a good living, to avoid poverty, for our kids to have a good education, and to have access to health care.

As business managers focused on their bottom lines, some CEO's might like to operate where they can get labor cheaply and without being expected to provide a lot of benefits.

As citizens, though, we want to promote good jobs that can support families, broad access to education, and health services.

This is not just an article in a trade magazine. This divergence between the interests of the short-term profit for investors and managers versus workers and citizens has a real impact on families in the real world. I know, because there was one measure I found where CEO’s top 10 lined up with economic realities: job growth.

CEO Magazine’s top 10 includes 8 of the 10 fastest-growing states in terms of employment over the past decade. The CEO top ten ranked 10th on average in job growth. The bottom 10 ranked 21st on average (Maryland fared better on this measure, ranking 11th).

And this helps to explain why workers are no longer benefiting from increases in productivity and why nearly all of the benefits of economic growth are going to the top 1 percent. These new jobs in the CEO-preferred states are low-quality (for the worker) jobs--lower paid, lacking benefits, and with few prospects for advancement.

CEO Magazine's kind of employment strategy is not what we want in Maryland. We need to continue to focus on maintaining our high standards for education and quality of life, and on attracting and retaining jobs that will help Marylanders thrive.

Health insurance coverage up in 2011 but poverty, median income unchanged

The Census Bureau released the 2011 American Community Survey today. The ACS is the primary resource for demographic data at the state, county, local, and sub-local level.

Some Maryland highlights:

Click to enlarge

• Median household income in the state was unchanged (no statistical difference with 2010) at $70,004 in 2011. Once again, Maryland has the highest median income in the nation. Nationwide, the median household income is $50,502.
• Maryland's poverty rate was also essentially unchanged, at 10.1 percent. The national poverty rate was 15.9 percent.
• Health insurance coverage among younger Marylanders 18-25 jumped 6.7 percentage points between 2009 and 2011, to 81.7 percent. The coverage rate for this population was significantly higher than the national coverage rate for the same age group of 71.8 percent (up 3.6 percentage points). This growth in coverage is partially attributable to the Patient Protection and Affordable Care Act provision allowing children under 26 to remain on their parent's policy.

Of course, there was enormous variation across Maryland in 2011 in each of these categories. Median household income was as low as $38,502 in Allegany County and as high as $98,953 in Howard County. Poverty rates ranged between 4.2 percent in Calvert County all the way up to 25.1 percent in Baltimore City. And health insurance coverage for Marylanders 18-24 (note slight variance due to data availability from statewide age range) varied between 86.4 percent in Wicomico County and 93.9 percent in Montgomery County.

U.S. poverty rate stable as number of uninsured fell

The Census Bureau just released data on poverty, income, and health insurance coverage in 2011. The data is from the Current Population Survey (CPS). According to the report, median household income declined, the poverty rate was not statistically different from the previous year and the percentage of people without health insurance coverage decreased.

The national poverty rate was 15 percent in 2011, with 46.2 million Americans living under the poverty line. The top 5 percent of wage earners saw their incomes rise between 2010 and 2011, while incomes fell for the other 95 percent.

Unlike the last ten years, private health insurance coverage remained steady nationwide. The provisions of the Affordable Care Act allowing young adults to remain on their parents insurance until age 26 seem to be responsible. Medicaid enrollment growth has offset some-but not all- of the losses in private health insurance coverage over the last decade. The program continued to grow in 2011 in response to the slow economic recovery. Combined with a stable private insurance pool, the share of uninsured Americans fell.

Maryland’s average poverty rate between 2010 and 2011 was 10.1% (in the CPS two-year averages are more accurate at the state level). That’s up 2.8 percentage points compared to the average in 2000-2001. This means on average 583,000 Marylanders were in poverty during the last two years. That’s 583,000 too many. Sadly, there were even more Marylanders without health insurance in 2010-2011 (an average of more than 758,000 uninsured).

MBTPI and its partners continue to advocate for policies and programs that assist Marylanders living in or near poverty. More detailed Maryland-specific data will be released next Thursday by the US Census based on the American Community Survey.

Working Marylanders Face Harsh Economic Problems

As the effects of the Great Recession drags on in Maryland and across the country, the state’s working families face continuing, severe challenges to their economic stability and overall well being.

We’re releasing State of Working Maryland 2011 today.  This annual report compiles and analyzes a wealth of statistical information that points to the deteriorating situation, and the necessary governmental responses. Even though Maryland now tops the country in number of millionaires (as measured by wealth), poverty has grown in the state, and is concentrated in both urban and rural areas.

Our findings include:

·         Over the last decade, the rate of poverty in Maryland has risen from 7.4 percent in 2000 to 9.1 percent in 2010, and for some populations poverty is much higher: 13.6 percent for African-Americans, and 12.8 percent for Marylanders of Hispanic descent. Baltimore City’s poverty rate exceeds 20 percent.

·         Maryland's unemployment rate remains stuck at 7.4 percent ­ the highest level since 1983 and twice the level prior to the Great Recession.

Getting and staying employed has become more difficult not only because of the difficult economic climate and paucity of jobs, but because work supports (such as childcare) have become less accessible; a waiting list for childcare support vouchers now looms.

·         Climbing up the income ladder has become more difficult as college affordability has waned. Over the past decade, in-state tuition costs at 4-year colleges have risen from 6.7 percent to nearly 10 percent of median family income.

·         Since 2000, median household income in Maryland has been flat, but income inequality has risen substantially. Maryland millionaires continue to do well, while others in the state struggle. 

But there are solutions to these problems. Maryland must invest to help spur job growth. The investments must be in human capital as well as infrastructure. State and local governments must help individuals become ready for work with appropriate training, and help them negotiate existing barriers to work, such as a lack of childcare or readily available transportation. Education must be a priority from pre-school to post-secondary.

If we leave working families to fend for themselves, our economic future will be grim and stark. If we invest in education, good jobs, and strong supports to help workers achieve independence, we can have broadly shared prosperity.