New from ITEP: Three Localities Are Leading the Way on Local EITCs

Contact: Jon Whiten ([email protected])

Leading localities are using refundable earned income tax credits (EITCs) to boost incomes and reduce taxes for workers and families with low and moderate incomes, as a new in-depth report from the Institute on Taxation and Economic Policy (ITEP) explains. These local credits reduce economic hardship, improve the fairness of the tax code, and advance racial equity.

The report’s key findings:

1: Three places offer local refundable credits linked to the EITC:

• Maryland’s Montgomery County matches up to 32 percent of the federal EITC for families with children and up to 67 percent for workers without children.
  New York City matches up to 30 percent of the federal credit.San Francisco offers an annual credit of $250 per family.

2: These credits have a big impact

• These credits together lift the incomes of approximately 700,000 households by more than $350 million each year in addition to federal and state tax credits.
• Our analysis finds that households in the bottom two-fifths of local income earners receive over 95 percent of the boost provided by Montgomery County’s EITC, and 90 percent of the boost in New York City.

Refundable local EITCs improve the economic security of workers, families, and children. These credits put dollars directly into the pockets of financially vulnerable households, helping them afford the basics and achieve better health and economic outcomes. But not all local EITCs are created equal, as our report explains. Local leaders can make their EITCs strong by making them refundable, inclusive of the most financially vulnerable households, and administered in a streamlined and accessible manner to facilitate use.

“Too many local tax codes are upside-down, holding back residents from living thriving, healthy lives,” says Andrew Boardman, ITEP Local Policy Analyst and co-author of the report. “Well-designed local EITCs counteract these forces by investing in families, delivering a meaningful income boost worth hundreds of dollars on top of federal and state tax credits. Lessons from these local EITCs hold relevance for any leader or community member seeking a stronger, fairer, and healthier community.”

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