April 30, 2009

Illinois EITC Expansion: "Welfare?"

The debate over how to resolve Illinois' looming budget deficit has, so far, been an unusually gratifying one. A brand-new governor with little political capital to spend has made a gutsy (and, in our view, basically correct) decision to push for an increase in the state's personal income tax, which is bar-none the least fair in the nation and among the very lowest as well.

There are, of course, things missing from the governor's plan. Eliminating income tax exemptions and sales tax exemptions would make the tax base more sustainable (and would reduce the pressure to increase tax rates). But in the short run Quinn's doing what is needed to make ends meet and has picked a quite fair way of doing it.

If there's one quite legitimate beef with the governor's plan as proposed, it's that there's not sufficient attention devoted to low-income tax relief. Which is why it's great to see the editorial board at the Springfield Journal-Register coming out in favor of an expansion of the state's Earned Income Tax Credit. The SJR's (correct) rationale:
This kind of credit is especially valuable to low-income working families in Illinois, where the poorest one-fifth of Illinois families spend an average of nearly 13 percent of their earnings in state and local taxes while the wealthiest 1 percent of Illinois households spend less than 6 percent of their incomes likewise.
All true. The underlying point here, unstated by the SJR, is that the EITC is valuable because it's an income-tax based credit that is refundable, meaning it can be used not only to offset income taxes but to offset sales, excise and property taxes paid by low-income families as well. And the main reason why the poorest Illinoisans pay such a huge chunk of their incomes in tax is because of these non-income taxes.

So you've got to charitably assume that it's because the SJR editorial doesn't explain this point clearly that half a dozen commenters on the SJR editorial make the boneheaded assertion that the EITC constitutes "welfare" because folks who get it have "zero tax liability" and are therefore getting "free money." One commenter, who claims to work at the Illinois Department of Revenue, has this to say:
I work at Revenue. Under the current system, many people pay no tax and still get a refund of their EIC on their state return. This is a form of welfare. People are getting money from the state that is not theirs, and they did nothing to earn it.
This tells me only that it's possible to work for the Department of Revenue and understands precisely zero about how the EITC works. It's based on earned income. If you have a job and a salary, you get the EITC. The more you earn, the more you get. So to say that EITC recipients "did nothing to earn it" is quite possibly the single most breathtakingly wrong thing one could ever assert about it.

It's important for people to understand that refundable income tax credits play a critical role in helping to reduce the unfairness of state tax systems overall, and that they shouldn't be understood as applying only to income taxes. But it's equally important for people to get that the EITC is a work incentive, and that work incentives respond to... work. A generation of "welfare reformers" who've worked diligently to create work incentives for low-income poverty relief would put their heads in their hands and quietly weep (or pull their hair out in despair) at the notion that one can "do nothing to earn" the EITC.

And, I suppose, the fundamental underlying lesson of all this is that we should really just never even bother reading the 'comments' section of web-based newspapers articles.


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