Earned Income Tax Credit could sway fair tax
Economic Security for Illinois backs ‘meaningful’ cost-of-living refund as taxpayer relief
Plans to expand the Earned Income Tax Credit could extend the program to day-care workers. (Shutterstock)
By Ted Cox
The way to Gov. Pritzker’s “fair tax” could lead through the expansion of a little-known tax break for working families, according to a new state organization.
Economic Security for Illinois is pushing for an increase in and expansion of the Earned Income Tax Credit as a way to give low-wage workers a tax break that could grease the wheels for a progressive income tax.
“It’s good for the economy, it’s good for society, and it could be an amazing win for the governor,” said Harish Patel, director of the organization.
First of all, however, taxpayers and government officials have to understand the low-profile tax break, Patel added.
The EITC, he pointed out, has “been pretty bipartisan for a long time.” It grew out of conservative University of Chicago economist Milton Friedman’s proposal for a “negative income tax” for low-wage workers back in the 1970s. As U. of C. lecturer Allen Sanderson pointed out last year in a debate on the minimum wage, it’s preferred by many conservative economists as a way of putting money back in the hands of low-income workers.
“It's probably a welfare program economists would like to see expanded,” Sanderson said, adding, “Given the choice between giving people things and giving people money, economists would rather give them money.”
“Given the choice between giving people things and giving people money, economists would rather give them money.”
University of Chicago economist Allen Sanderson (One Illinois/Ted Cox)
Basically, the EITC gives workers a percentage of their taxes back if they meet the requirements. Currently, the Illinois income tax has an 18 percent match of the federal EITC, raised from 10 percent just a couple of years ago. According to Patel, it provides a graduated amount of relief to working parents earning up to $55,000.
State Rep. Maurice West II, a freshman legislator from Rockford, has submitted House Bill 2869, which would double the Illinois match to 36 percent of the federal EITC. “But the fight we want to fight for is to expand it,” Patel said. “We want more people to qualify for it.”
Patel said Economic Security for Illinois would like to see the program extended to all those making $75,000 or less, and not just parents. He’d also like to see it extended to child-care workers and those providing care to elder citizens.
“Those tend to be low-income people, but also a lot of women,” Patel emphasized.
He pointed out that increases in the cost of living overall and in child care, elder care, student debt, and housing costs specifically have “made a lot of lower-middle-class people live paycheck to paycheck.” As such, expansion of the EITC is being pitched as a “cost-of-living refund.”
Patel would like to see the EITC provide “a significant amount of money” to all those who qualify, not a dwindling paltry amount for those on the higher end of the wage spectrum, “so that everyone makes $1,000” over the course of a year, “so it’s meaningful.”
The goal is also to make enrollment automatic, given one’s income — or at least make participation easier than it is now, as a complicated addendum to tax returns — and to spread the tax rebate out year-round, so that those who qualify are getting back $100 or so a month.
“In the short run, we want more people to get a little bit more money and make it so they can do it automatically or easily,” Patel said.
Because the money is going to low-wage workers suddenly able to buy things they otherwise couldn’t afford, it tends to go right back into the economy. Estimates are that for every 5 percent expansion in the number of people getting the EITC in Illinois, $52 million goes into the state economy.
Patel and Economic Security for Illinois believe that expansion of the EITC would complement the tax reform already being contemplated in the form of Gov. Pritzker’s “fair tax.” He pointed out that Pritzker’s initial proposal called for a reduction in the current 4.95 percent flat tax rate for those making under $100,000, with two tax brackets set at 4.75 and 4.9 percent — relatively meager reductions. Similarly, a complementary break on property taxes would return, on average, just $69 to a homeowner over a year, Patel said, a negligible amount.
According to Patel, the latest polls show support for an Illinois graduated income tax at just 62 percent, when it will need a supermajority of 60 percent of the vote to be approved in the next general election in November 2020. The difference of 2 percentage points “is the margin of error,” Patel said. “That’s not going to work.”
Instead, he’s been lobbying legislators and Pritzker’s staff to combine it with expansion of the EITC that would put $100 a month back in people’s pockets, adding, “We told the Governor’s Office if you want people to vote for this, you have to give them something tangible.
“It’s easy to say no to things like this,” Patel said. “Why try to change the whole system when all I’m going to be getting is $69 or $100 back? That’s not worth it.”
Patel and Economic Security for Illinois also had a role in Chicago’s Resilient Families Task Force, put together by Mayor Rahm Emanuel to study a pilot program for Universal Basic Income proposed by Alderman Ameya Pawar, founder of One Illinois. Earlier this year the group produced the report “Big Shoulders, Big Solutions: Economic Security for Chicagoans.”
But for now Patel and his group are concentrating their efforts on attaching the EITC expansion to the governor’s tax overhaul as the General Assembly rushes toward the end of its session May 31.
“The governor is trying to make a fair tax code,” Patel said. “I guess we would call this a much fairer tax code.”