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Thursday, January 24, 2008

Local Stimulation

posted by on January 24 at 13:33 PM

While the feds are offering up a tax rebate to stimulate the economy (which Erica thinks won’t do much to help lower-income workers), the libs in Olympia are proposing a bill that directly focuses on tax rebates for low-wage workers.

Sen. Craig Pridemore (D-49, Vancouver, Minehaha, Hazel Dell, Walnut Grove) has a bill—written by the left wingers at the Washington Budget and Policy Center—that would allow Washington taxpayers to take advantage of the Earned Income Tax Credit.

Lower-wage workers can already take advantage of the rebate on federal income taxes—Washington taxpayers got about $600 million back from the feds in 2004 through the EITC program.

Unfortunately, because Washington State doesn’t have an income tax (we’ve got a sales tax), minimum-wage workers haven’t been able to get similar rebate help out of our regressive system.

Higher-income workers can get state rebates by itemizing their tax returns based on expenses under our sales tax. No so for low-wage workers.

So, without an income tax here, how can low-wage workers get any state rebate?

Sen. Pridemore’s bill solves the problem by providing a state tax rebate equal to 10 percent of a taxpayer’s federal EITC credit.

RSS icon Comments


OK, even I am confused by this one.

Why not just give the money to the ultra-rich here too?

Posted by Will in Seattle | January 24, 2008 1:48 PM

I really like that idea... thanks for the link, I'm going to go read that bill.

PS- not ALL low-income workers take advantage of the EITC and other tax credits on federal income taxes, or even know about it.

These people, people who can't afford a CPA or even H&R Block, should really know about United Way of King County's free tax campaign - that's exactly what it's for. They'll do your taxes for free.

Multilingual services available too.
And I think there are still opportunities to volunteer to help.

Posted by tamara | January 24, 2008 2:24 PM

why do the refunds have to be more progressive than the original taxes? the point is that the money is spent...

Posted by infrequent | January 24, 2008 2:31 PM

(disclaimer: i'm not against more progressive taxes -- i just think the initial taxing should change, not some back door route to redistribute wealth.)

Posted by infrequent | January 24, 2008 2:37 PM

As someone who's provided free tax services for a number of years, this is all well-and-good, so far as it goes.

But, one of the main reasons more people aren't able to take advantage of the State Sales Tax Deduction for instance, is because they don't have enough itemized deductions to file a Schedule A; basically, anyone not paying a large amount in mortgage interest isn't going to beat the Standard Deduction, and thus isn't going to qualify to get the SSTD.

So, it's not just a dyfunction of our State taxation system, but rather a quirk in the Federal tax regulations that allows people with certain expensible assets (e.g. homes on which they're paying mortgage interest) to take advantage of certain deductions, while others, particularly those in the lowest income brackets who can't afford home ownership, can't.

Which of course, is why tie EITC exists in the first place, to give these folks a bit of relief. But, as you say, many people don't know about it, or about how to qualify for it, and frankly, a lot of people fall in between the cracks, earning slightly more than the minimum for Earned Income Credits (or more commonly, they don't have kids, which is the primary, albeit not exclusive purpose for the credit), but not enough to have itemizeable expenses.

Those are the folks who could REALLY use a break, tax-wise, but because they tend to be "invisible" so far as these types of deductions and adjustments are concerned, they tend to be ignored.

Posted by COMTE | January 24, 2008 2:55 PM

The real problem is the federal tax system, but unfortunately Democrats don't seem interested in changing it.

Here's what we should do. Keep the mortgage interest and property tax deductions, but institute a cap on the deduction so that people in truly high-end homes don't have their luxury homes subsidized by the government. Add a rent deduction with similar caps. Probably keep the charitable deduction. Raise the standard deduction to cover the top income of the second quintile. Get rid of all other deductions including those for dependents. Tax all other income, including capital gains and dividends and interest income, at the top rate, which might need adjustment for revenue neutrality (probably downward, once cap gains and dividends are taxed at the same rate).

Everyone would still pay Social Security and other payroll taxes, but since those programs have a slightly progressive benefits structure that's not ultimately regressive. Universal health care should also be financed that way.

The result is that 40% of Americans would instantly pay zero income tax, but we'd still be able to pay for everything we pay for today. Many of those just above that 40% would pay a lot less than they do now, meaning that you'd have a majority of people getting a permanent tax break. And the forms would be dead simple. Just add up all your income, make three deductions, and that's it. If your total income is less than the standard deduction, you fill in one box and send back your postcard.

Then raise the minimum wage to above the poverty level. We could still retain the EITC if we wanted to help certain low-income people with children, but it would no longer be a tax credit for anyone, and it would be needed much less frequently because of the overall tax break and higher incomes.

Posted by Cascadian | January 24, 2008 3:39 PM

Interesting ideas Cascadian, but the caps on deductions is only going to be beneficial if you don't tie them to the Standard Deduction.

If you raise the SD, it just makes it harder for people to take the home mortgage, property tax & charitable deductions, because the way the system is set up, the cumulative itemized deductions have to BEAT the Standard Deduction in order to count as an adjustment against income.

If they were all separate line items, say in the credits and adjustments section of the 1040 (and I'd retain a few others, such as student loan interest credit, unreimbursed employee expenses, tuition credits, and medical expenses), so that everyone could take them, regardless of whether they "beat the SD", then it would be a fairer application of what I think you're getting at.

Posted by COMTE | January 24, 2008 4:44 PM

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