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.

The Week Ahead

Last week we blogged about the cuts to food assistance that will arrive this fall, absent action from Congress. Also last week, Neil Bergsman appeared on WYPR's Midday with Dan Rodricks to talk about taxes in Maryland. You can hear a streaming podcast of the show here. Neil's segment can be heard around the 19 minute mark.

The Bureau of Labor Statistics released several reports last week, including the monthly employment numbers by state and metropolitan area for June 2013 (not seasonally adjusted). Overall, the national unemployment rate this June was 7.8 percent, which was 0.6 percentage points lower than last June. Maryland's non-seasonally adjusted unemployment rate was 7.5 percent in June, up from 6.9 percent in May. The Employment Situation Summary for July 2013 reported that the national unemployment rate reduced lightly by 0.8 percentage points, at 7.4 percent. Very little change occurred in most labor sectors and among most worker demographics since June.  

For the week of August 5th through the 11th:

• On Tuesday, August 6th, the Bureau of Labor Statistics will release its Job Openings and Labor Turnover Survey at 10:00 am.
• On Wednesday, August 7th, the Workgroup on Access to Habilitative Services Benefits meets at 9:30 am at the Maryland Insurance Administration Hearing Room on the 24th Floor of St. Paul Plaza at 200 St. Paul Place in Baltimore.
• Later on Wednesday, the Vehicle Theft Prevention Council will be reviewing programs and budgetary issues for fiscal year 2014 at 10:00 am at the Loyola University Graduate Center at 8890 McGaw Road in Columbia.
• Also at 10:00 am on Wednesday, the Board of Environmental Health Specialists assembles at the Howard County Bureau of Utilities Building at 8270 Old Montgomery Road in Columbia. They may discuss/vote on proposed regulations, and a portion of the meeting may be held in closed session.
• Wednesday afternoon, the General Provisions Article Review Committee meets at 2:00 pm in room 241 of the House Office Building at 6 Bladen Street in Annapolis. They will be reviewing committee drafts.
• On Thursday, August 8th, the Maryland Health Insurance Plan Board of Directors have a board meeting at 9:00 am in Suite 630 of 1 Calvert Plaza at 201 E. Baltimore Street in Baltimore. Participants may attend in person or by conference call. For dial-in instructions, click here.

The Week Ahead (Tax Day Edition)

Happy Tax Day (really)! We're thankful yet again for all the things our federal and state taxes pay for--like education, healthcare, and public safety.

Last week we published a follow up post to our pre-session discussion of the three big bad wolves threatening Maryland's budget. We also blogged about the important non-budget legislation passed in the 2013 session, and on unfinished business.

MBTPI is co-hosting a Legislative Reception next week on Tuesday, April 23rd, to celebrate the end of the 2013 legislative session and we want you to be part of it. Click through to find out more or to register for this free event.

For the week of April 15th through April 21st:

• Our friends at Maryland Hunger Solutions are holding a conference call for organizations interested in or engaged in food stamp outreach from 9:30-10:30am on Wednesday, April 17th. The call will focus on the benefits of joining the Maryland Food Supplement Program State Outreach Plan, including the potential for federal reimbursement for staff time and marketing activities related to these efforts. Click here to register.
• That same morning the Board of Public Works meets at 10am.
• The Interagency Committee on School Construction holds their regular meeting at 9am on Thursday, April 18th in Baltimore. School construction, particularly in Baltimore City, was an important issue in the 2013 session.
• Also on Thursday, the Maryland Health Care Commission meets at 1pm.
• On Friday, April 19th, the Bureau of Labor Statistics releases state-level employment figures for March.

Unfinished Business in the 2013 Session

MBTPI supported a number of proposals which were not successful this year. We plan to continue working on these issues.

iStock.com

Earned Sick Leave

The Maryland Budget and Tax Policy Institute (MBPTI) supported HB 735 and SB698, requiring that employers provide employees with earned sick and safe leave and requiring employers to allow employees to use earned sick and safe leave. The bill would have benefited Maryland’s economy, reduced health care costs, and helped working families provide and care for their members. Earned sick leave is an important public health tool, enabling employees to take care of their health or the health of their children in a timely manner, and protecting coworkers, diners, or other customers from infection.

The cost to Maryland businesses would have been low, amounting to about 25 cents per hour per employee according to the Institute for Women’s Policy Research. More importantly, the business savings – primarily due to reduced turnover but also to increased productivity as a result of less sickness in the workplace, healthier customers, and other effects – completely offset these costs. The experiences of Connecticut and San Francisco show that earned sick leave requirements can be part of a vibrant, growing economy.

Unfortunately, the bill was opposed vigorously by business organizations. The House bill was withdrawn; the Senate bill died in committee. Yet the evidence shows that paid sick leave is not just a humane practice; it is good economic policy. MBTPI will support this legislation in the future.

Life-saving cigarette taxes

MBTPI supported legislation to add $1 per pack to Maryland’s tobacco taxes (HB 683/SB 700). This would have improved Maryland’s health by discouraging smoking, especially among young people. And it would have provided revenue which could be directed to health services. Both House and Senate bills died in committee, though. MBTPI will continue to support this measure on the principles of promoting good health and providing needed revenue.

Reforming corporation taxes

The state corporation tax got a lot of attention this session. Many bills were submitted to reduce the corporation income tax rate. Others proposed reforms to modernize the corporation tax, most notably by requiring “combined reporting” a tax system that prevents multi-state corporate groups from using subsidiaries and affiliates to avoid Maryland corporate income tax.

MBTPI supported a joint strategy of broadening the tax base and lowering the rate. The Institute supported combined reporting and other reforms to discourage corporate tax shifting and to broaden the corporate income tax base. A majority of the states with corporate income taxes have closed these loopholes.

We also supported a reduction in the corporation tax rate from 8.25 percent to 7.5 percent. Lowering the corporate income tax rate to 7.5 percent would put it near the same rate at which most Maryland personal income is taxed (including both state and local income taxes). We believe that this package would protect the revenue base needed to fund public services that are important to the economy, make Maryland’s tax system fairer and more modern, and help local Maryland businesses.

All of the bills to alter the corporation income tax either died in committee or were reported unfavorably. MBTPI continues to support sensible business tax reform.

Protecting resources for schools

MBTPI supported legislation to protect future education funding (HB 1474/SB 958). Over a decade ago, Maryland enacted a groundbreaking set of education finance reforms know as the “Thornton Program.” These reforms were based on a rigorous study of the actual costs in the state’s best-performing schools. They were intended to assure adequate education funding for all students, and to provide the resources necessary to reduce systematic performance gaps between students of different income categories and racial and ethnic groups. During the period of the Great Recession and its aftermath, the state found it necessary to limit the growth in the formula amounts. HB 1474 would have helped to prevent further erosion in Maryland’s commitment to full and fair public school funding. The bill died in committee. MBTPI will be calling on Governor O’Malley to fully fund the inflation increase in school costs in the next budget, and will again support legislation to protect future school funding.

Evidence-based policies

MBTPI supported legislation to promote evidence-based policy outcomes. SB 831 would have established a Committee on State Budget Evidence-Based Policy Options. The Committee would have reported annually on areas of opportunity within the operating budget where the state could benefit from evidence-based policies. This bill also died in committee. Over the summer, we will look at other states that have adopted this practice to gauge its success.

Unlike some states (Texas), Maryland’s legislature meets every year. MBTPI will be keeping track of these issues, and others, and pursuing them further in the 2014 legislative session.

PLEASE ACT NOW - THE FISCAL CLIFF IS DANGEROUS!

This is a repost of a blog by Henry Bogdan, Managing Director of Public Policy and Public Affairs for Maryland Nonprofits and our own Neil Bergsman. At the end there is more information about our fiscal cliff conference call next Thursday.

The "fiscal" or as we're calling it, the "human cliff" poses a real threat for our nonprofits and our clients. It is not just a matter of protecting the deduction for charitable contributions.

The “fiscal cliff” refers to a series of tax increases and budget cuts that take effect around the first of the year, unless Congress acts to avoid them. Maryland Nonprofits is asking you to contact your member of Congress and urge them to REACH A RESPONSIBLE COMPROMISE AGREEMENT:

• INCLUDING A BALANCED PACKAGE OF TAX RATE INCREASES ON HIGH EARNERS AND MODERATE SPENDING REDUCTIONS
• AVOIDING CUTS TO PROGRAMS THAT WOULD THREATEN THE MOST VULNERABLE AMERICANS
• PRESERVING AN EFFECTIVE INCENTIVE FOR CHARITABLE CONTRIBUTIONS
  

The fiscal cliff will trigger automatic federal budget cuts of $109 billion each year, half to defense and half to “discretionary domestic spending.” Across the board this would be an 8.2% cut to hundreds of programs that relate to nonprofits’ missions in the discretionary domestic category: from nutrition, to substance abuse treatment, to job training, and the arts.  That automatic budget-cutting process is called “sequestration.” The sequestration cuts are estimated to mean a loss of over $117 million in Maryland’s state budget alone for the next year.  
At about the same time, tax reductions for people at all income levels adopted over the last 11 years would expire all at once with major impacts on the economy. Together with sequestration these are referred to as the “fiscal cliff”.
If nothing is agreed upon in Washington, there is a strong chance of renewed recession in addition to major spending cuts.  The State Department of Legislative Services recently estimated a potential combined negative impact on Maryland’s fiscal 2014 personal income and sales tax revenues (which make up about 80% of the state’s general funds) ranging from $337 to $635 million.  Together with the sequestration cuts listed above, this could reach over 5% of the state’s total general fund budget.
Much more likely is a gradual or phased package of negotiated tax changes combined with new revenue and significant new cuts in future spending.  For domestic programs, this will be in addition to cuts over the next ten years already adopted in the Budget Control Act of 2011. Failure to raise major new federal revenue, as the President is proposing by eliminating most of the Bush-era tax cuts for the wealthiest 2% of taxpayers, will magnify the size of additional spending cuts required. Domestic program funding through the states, Medicaid, Head Start, Title 1 Education, Women and Children’s Health, for example, are all at risk. Further, any cuts absorbed by states will likely mean reductions in additional areas as they try to re-adjust priorities at their level.   
WHAT CAN YOU DO?
 
Cuts are coming – even without the “cliff” the Budget Control Act has already put reduced spending caps on discretionary domestic spending, and rapidly growing costs of veterans’ benefits will compete with everything else in that category.  Nonprofits must be advocates for raising federal revenue – as much and as fairly as possible. 

1. Support the President’s tax proposal – it is the best chance to protect the most services for people and communities we serve!
2. Oppose ‘flat dollar caps’ on tax deductions – these are being proposed as an alternative to the President’s plan for tax rate actions and a modest limit on the percentage value of deductions for top earners.  Caps won’t raise as much revenue, so many more cuts must occur, and will have major negative consequences for charitable giving and many state tax systems that benefit from federal deductibility.  More information... 
   

HOW CAN YOU DO THIS?

1. Craft a message (you can use this sample format and vary the details for your audience) that: 
1. describes the people (children, families, communities, etc.) that your nonprofit serves or advocates for, and the importance of their needs; 
2. summarizes how cuts in the government-supported services they use and need will impact them and the community; and 
3. supports the President’s tax and revenue plan to help protect those services. 
2. Communicate this message (by phone, letter, email, meetings) to your member(s) of Congress (use http://mdelect.net/ to find your representatives and their contact information). 
3. Communicate to the public through social media, letters to editor, other local media, etc., to raise the profile of the issue. Communicate the same message to your state legislators and state officials (and local officials if they are involved in the services or funding). They will decide whether or how to make up for federal cuts, and how to cut or re-allocate their own resources. 
4. Reach out through your networks, coalitions, or state associations of providers or advocates, to reach more of the state’s delegation in congress (and more of the media and the public). 
5. Keep up with developments and keep your message current and fresh – follow the Maryland Budget and Tax Policy Institute’s updates at www.marylandpolicy.org 
6. Involve your board, staff, volunteers, supporters and clients in the steps above. 
7. AND Join us for a “fiscal cliff” information conference call at noon on Thursday, Dec. 13 at 1-866-740-1260, passcode 7636737.

ALERT: Fox 45 Budget and Tax Town Hall TONIGHT 7pm

Maryland lawmakers recently passed a responsible compromise budget that featured both spending cuts and tax increases, while avoiding $500 million in “doomsday” cuts.

MBTPI’s own Neil Bergsman will be taking part in a town-hall style debate on taxes and the budget, TONIGHT at 7pm.  The other three panelists will be Vincent DeMarco from the Maryland Health Care for All Coalition, Charles Lollar from New Day Maryland, and David Schwartz from Americans for Prosperity. Mark Hyman of Sinclair Media will moderate. Fox 45 (which is owned by Sinclair Media) is hosting and moderating the debate, which will be streamed live on their website (it will NOT be broadcast live). Viewers will have the chance to submit questions online, on Facebook, and via Twitter.

We know that our opponents will flood the Fox 45 forums with questions arguing that Maryland should cut taxes and gut vital programs. With your help we can show support for continued public investment in the programs and services that make Maryland great, such as our schools, parks, hospitals, and universities. 

Please watch the 7pm debate live at www.FoxBaltimore.com.  We also ask that you post comments and submit questions for the panelists on Fox 45’s website, Facebook page Facebook.com/foxbaltimore and by Twitter @FoxBaltimore. You can also follow along as MBTPI tweets comments and reactions to the debate at @MarylandBudget. The hashtag for the forum will be: #Fox45TownHall. 

See you tonight!

The Week Ahead

We hope you had a happy and safe Memorial Day!  While this weekend marks the unofficial start to summer, it also commemorates the sacrifices of American servicemen and women.  The next time somebody asks why we need taxes remember, taxes pay our soldiers (and firefighters, teachers, garbage collectors, and many other important people).

Tuesday, May 29th

• Alcoholic Beverages Article Review Committee meets to review festival licenses and tasting licenses.  Having spent the weekend at the Delfest Bluegrass Festival in Cumberland with a bunch of fine folks from Frederick's own Flying Dog Brewery, I appreciate the work of this committee.  5pm in the Judiciary Training Room, 2009F Commerce Park Drive Annapolis.

Wednesday, May 30th

• Bureau of Labor Statistics (BLS) releases April metropolitan-level employment statistics.

Thursday, May 31st

• Maryland Health Care Commission meets at 11am in conference room 100 at their offices in Baltimore (4160 Patterson Ave).  This meeting makes up for the cancelled May 17th public meeting.

Friday, June 1st

• June 1st is the earliest date most bills (other than emergency legislation) may take effect.  However, October 1st is the usual effective date for bills. 
• BLS release May employment statistics for the entire U.S.  In April the national unemployment rate dropped slightly to 8.1 percent.
• The newly formed Work-group to Consider Gaming Expansion meets for an overview of video lottery terminals in Maryland and surrounding states, recent video lottery terminal legislation, and presentations from current and prospective video lottery facility licensees. 10am in room 101 of the House Office Building, Annapolis.

Governor releases details of special session agreement

Governor O'Malley, Senate President Miller, and Speaker Busch held a press conference this morning (video) outlining the agreement they have come to for the special session starting May 14th.

For the most part, the new Budget Reconciliation and Financing Act (BRFA) and revenue bill will follow the template created by the conference committee at the end of the regular session.  Other highlights from the press conference included:

• The session should take three days.
• The special session agreement will include an additional $109 million in cuts.  The majority of the new cuts, $80 million, are actually due to revised estimates of Medicaid costs..  However, there is no explanation yet on where the other $29 million will come from.
• The revenue package will include a tax increase on single filers making more than $100,000 and joint filers making more than $150,000 (the top 16 percent of filers, according to the Governor).  The House and Senate leaders confirmed they are in agreement on this point.
• Sharing education pension costs with counties is part of the deal, phased in over four years.
• Transportation funding is a continuing problem, but will not be addressed this year.  Nor will the "net taxable income" issue (NTI).  NTI is an element of the education funding formula of particular importance to Baltimore City and Prince George's County. The governor said that he plans to do something about NTI in his budget next year.
• The overall FY2013 budget will grow 2.6 percent, but general fund spending will decline $380 million.
• The fund balance at the end of FY 2013 is projected to be $204 million, an improvement over the $155 million balance projected in the conference agreement. This will help protect the state against the possibility of mid-year cuts, and put the state in a better position to balance the next budget.

The governor also said he would send a letter to the speaker and senate president to begin convening a working group on gaming shortly, in anticipation of calling a second special session later this summer.

Happy Tax Day!

Happy Tax Day!

That might seem like an strange thing to say, but around here we're thankful for all the things our taxes do for us.  Whether it's providing a quality education to our children, protecting our communities, building the road and transit systems that connect us, protecting our food supply, preserving the Chesapeake Bay, or providing healthcare, we're thankful for all the things our taxes pay for that make Maryland a great place to live, work, and play.

Unfortunately, taxes get short shrift much of the time.  Often, people don't make the connection between their taxes and the public structures that our tax dollars pay for. Or they buy in to the various myths about taxes that the right has propagated over the last thirty years.

Fact #1: America is one of the least taxed countries in the developed world. 

According to the Organization for Economic Cooperation and Development, only Mexico and Chile pay less in taxes, as a percentage of gross domestic product.

Fact #2: The share of taxes the rich pay is close to their share of the total income - not a lot more.

Actually, when you look at the tax system as a whole (including sales, property, estate, and corporate taxes), our tax system is just barely progressive.

Fact #3: Almost all Americans pay taxes

Again, when looking at the entire tax system, everyone pays something.  Even those who owe no income tax, or due to various anti-poverty programs have a negative tax liability, still pay many other types of taxes (payroll taxes, gas taxes, sales tax, etc.).

Fact #4: Corporations pay only moderate taxes

While the federal corporate tax rate is 35 percent, the effective tax rate for most corporations is far lower.  Citizens for Tax Justice found that the 280 most profitable U.S. corporations sheltered half their profits from taxes, ending up with an effective tax rate of just 18.5 percent.  


Fact #5: Tax cuts can hurt the economy

It ought to be obvious that cutting taxes results in fewer government purchases, declining infrastructure, a weaker social safety net, and layoffs of government workers, reducing overall economic activity, unless you increase deficits.  While low and moderate income households living paycheck to paycheck would be likely to spend any windfall, high income households that already have significant discretionary resources are unlikely to suddenly change their behavior.  And yet somehow it isn't.

The Center for American Progress analyzed the national economy after the 1981 and 2001 tax cuts compared to the 1993 tax increases and found that tax cuts on profits, savings, and the wealthy failed to spur economic growth.

Building a strong economy and creating jobs takes smart investing.  Taxes are how a responsible society pays for those investments.  We can't afford to not invest in Maryland's future.