Expanding California’s earned income tax credit is a smart investment in working families
The earned income tax credit is among the most effective anti-poverty measures that exists in the United States.
It functions as a cash back refund to most recipients, because the credit is typically worth more than what they owe in taxes. By allowing low-income workers to keep more of what they earn, it encourages work and increases financial security.
An analysis of research on the federal earned income tax credit by the Center on Budget and Policy Priorities found that its expansion in the 1990s contributed as much as any other factor to the increase in work by single mothers seen during that decade.
The analysis also found that children in families receiving the credit performed better in school, are more likely to attend college, and have higher earnings as adults.
In California, we created our own state earned income tax credit in 2015, called the Cal EITC, which is targeted to workers at the very low-end of the income spectrum.
Similar to the federal credit, the California earned income tax credit is much larger for people with dependent children. Our legislators have wisely expanded this credit twice, increasing the income threshold and allowing self-employment income to be counted too.
This year, for the first time, young adults age 18 to 24, and older adults over age 65, qualify for the California credit. California is the first state to allow people over age 65 to claim its earned income tax credit—a prescient move given our aging population, and the fact that more people are working later into life than ever before.
In just the first three months of 2019, more than 1.3 million Californians have received close to $264 million through the California earned income tax credit, the Franchise Tax Board reports. That’s a 40 percent increase in the number of claims over the same period last year.
Despite that success, our economy is still extremely difficult for low-income workers, especially parents. In California, 20% of families with children live in poverty, far more than the national average of 15%, according figures from the California Budget and Policy Center.
We can be doing more for these families. Gov. Gavin Newsom is proposing to do just that, with a meaningful expansion of the California earned income tax credit as part of his 2019-2020 budget.
The governor’s proposal would increase the income threshold to cover full-time workers making slightly more than $15 an hour, while also increasing the value of the credit for families with children.
The largest increase would go to families with children under age 6. With the expanded credit, a single mother with one infant child could use her Cal EITC refund to buy diapers for an entire year, according to the Budget Center.
The governor’s expansion would reach an estimated 3 million low-income Californians, helping them to share in California’s prosperity. As the cost of health care, housing, food, and transportation continue to rise, we must make work pay better. Expanding the Cal EITC will do that for those who need it most.