Supporting our constituents and our local economies by increasing the Earned Income Tax Credit
When the legislative session ends, we will be judged on what we have done for everyday Rhode Islanders. We know that many working Rhode Islanders struggle to meet basic needs. One policy we hope to enact this session to address this challenge and build our local economies is an increase to the state’s Earned Income Tax Credit (EITC).
The EITC is a common-sense tax credit that reduces the income tax owed by lower-wage working families. The federal credit is considered one of the nation’s most effective tools for lifting families out of poverty, boosting the incomes of low-paid working families who struggle to afford basic needs like housing, heat, food, and health care.
A state EITC, which 29 other states have enacted, builds on the federal credit and provides working families with more disposable income—income that is put back into the cash registers of local businesses. For every dollar that is invested in the EITC, $1.25 goes back into local economies. This investment in Rhode Island’s working families is an economic boost to every sector of our economy because raising the EITC from 15% to 20% would provide $46.3 million to the Rhode Island economy - $11.5 million more than the current 15% EITC.
Rhode Island lawmakers increased the state EITC to 15 percent of the federal credit over the 2016 and 2017 sessions, and there it has remained. Our neighbors to the north, Massachusetts and Vermont, have increased their state EITCs to 30 and 36 percent, respectively. These states recognize the importance of supporting their working families.
This year, we have introduced legislation to increase the state credit to 20 percent of the federal credit. This will help close to 5,000 of our own constituents – and over 82,000 Rhode Islanders around the state. An increase from 15 to 20% will boost the annual income of these low- wage workers by an average of $461.
The December 2017 Federal Tax Cuts and Jobs Act (TCJA) erodes the value of the EITC over time by using a different measure of inflation, the “chained” Consumer Price Index (CPI). This means that the maximum value of the federal credit will rise more slowly over time than under the previous standard. This change reduces the value of Rhode Island’s current 15% EITC. With reduced federal and state credits combined, working families stand to lose hundreds of dollars per year. Rhode Island can mitigate this effect by increasing our EITC from 15% to 20%. It is worth noting that three of every five recipients of the federal credit use it temporarily – for just one or two years at a time – while they get back on their feet. Proof that it works.
There is no better way to invest in Rhode Island’s working families and positively impact our entire economy than increasing the EITC to 20%. We hope our fellow lawmakers will join us in supporting this critical investment in Rhode Island’s future.
Senator Conley represents District 18 in the Senate. He resides in East Providence. Representative Slater represents District 10 in the House. He resides in Providence.