Friday, February 02, 2007

On Job For Working Poor

from The Hartford Courant

Advocates Strive Again For Earned Income Tax Credit In State

By JANICE PODSADA, Courant Staff Writer

For years, Christine Leatherwood, a single mother of three children ages 14, 10 and 4, took the bus from her home in Hartford to work. The employment agency she worked for tried to place her in jobs downtown, but that wasn't always possible.

Some days, Leatherwood, 34, had to ride two or three buses to get to work.

Three years ago, Leatherwood, who was earning $23,000 a year, learned she qualified for the federal earned income tax credit.

With the $3,500 she received that year thanks to the credit, she bought a 7-year-old Honda Accord for $3,200.

The car eased her commute and her anxiety, making the prospect of a family emergency less worrisome. Now, Leatherwood, a working mother since she was 21, is saving her earned income tax credit refunds to buy a home.

Success stories such as Leatherwood's have inspired supporters of a state earned income tax credit to try again.

A coalition of backers, including the Connecticut Association for Human Services and the League of Women Voters of Connecticut, gathered at the Capitol Thursday to announce their support for a state earned income tax credit, which would piggyback on the federal earned income tax credit.

The movement to establish a state tax credit isn't new.

For years, legislators, including state Sen. Martin Looney, D-New Haven, and others have been pushing for it. This year, supporters say, they're optimistic about passage. This year, like last, the state has a budget surplus.

The federal tax credit lifts more children out of poverty than any other federal program and provides greater purchasing power for low-wage earners, said James Horan, executive director of the Connecticut Association for Human Services.

In 2003, the federal tax credit program helped lift 4.4 million people out of poverty, including 2.4 million children. "Families use it to pay bills, rent, utilities and food," Horan said. "They're not using it to buy a year's worth of Cablevision."

Under the proposal, Leatherwood and thousands of other Connecticut families would receive a state refund equal to 20 percent of their federal earned income tax credit.

If a state tax credit had been in place three years ago, for example, Leatherwood would have received a state refund check for about $700, in addition to the $3,500 federal refund credit she received.

For Leatherwood, the additional money represents a safety net.

"It means that when an emergency arises, I don't have to use the weekly paycheck," she said.

In 2004, the federal tax credit returned $268 million to 165,000 low-wage-earning Connecticut families.

Under the federal program, enacted in 1975, families with two or more children with earnings up to $38,348 are eligible for a tax credit on a sliding scale, up to $4,536.

Families with no children or one child are also eligible, depending on their income.

In Connecticut, the average federal tax credit refund is $1,610. Under the proposed state tax credit, families receiving that amount would receive an additional $322 state refund (20 percent of $1,610), with the maximum state credit capped at $900, Horan said.

A state tax credit would refund about $51 million annually to Connecticut families eligible for the federal tax credit. All of the New England states, except Connecticut and New Hampshire, which does not have a state income tax, have a state tax credit. And nationwide, 20 states and Washington D.C., have adopted it.

Opponents, however, question how families will spend the money and its value. Among their questions: Why should the state income tax system refund money to people who don't pay taxes? If you qualify for the federal tax credit, you're unlikely to pay Connecticut's state income tax, Horan said.

Its supporters, on the other hand, say low-wage-earning families do, indeed, pay state taxes.

"While most low-income people don't pay state taxes, they do pay a disproportionate portion of their income for state sales tax, property and excise taxes," said Jodonna Powell, a territory manager for the Internal Revenue Service department that promotes the tax credit.

Opponents also question how the state would fund the program.

"With a surplus, that money would come out of the budget - though in future years, it might come out of the state's general fund," Horan said. "That's not a budget breaker for a state with a $14 billion budget."

Others are concerned that funding a state tax credit would violate the state's budget cap. According to the state Office of Fiscal Analysis, the tax credit is a credit; as such, it is considered a tax expenditure and not a spending appropriation.

Supporters of the proposal said they're also trying to reach the 15 to 20 percent of Connecticut families who are eligible for the federal credit, but have not claimed it when they file their tax return.

Some families don't realize they're eligible; others fear that in claiming the credit, they'll lose food stamps or other benefits, which is not true, Powell said.

To help them find out whether they are eligible for the federal credit, the Volunteer Income Tax Assistance program, which is overseen by the IRS, is offering tax preparation assistance at 80 sites in Connecticut. The service is free to taxpayers earning $39,000 or less a year.

Contact Janice Podsada at jpodsada@courant.com.

No comments: