By RUSTY MARKS
The State Journal
CHARLESTON, W.Va. — Several West Virginia banking officials and former business people say they support an earned income tax credit to help provide a boost for lower-income families.
While Republican leaders in the Senate and House of Delegatesare discussing changing the state’s tax code and doing away with the state income tax, some are also open to the idea of a tax credit for lower-earning West Virginians.
Working Family Tax Cut
A state earned income tax credit “is essentially a tax cut for working families,” said Seth DiStefano, EITC campaign coordinator for the West Virginia Center on Budget & Policy, a left-leaning, Charleston-based think-tank that conducts research and makes recommendation for local governmental policy.Budget & Policy staff have been pushing for a state earned income tax credit for a decade. The concept is based on the federal earned income tax credit, which provides a tax refund for individuals or families who make less than a certain amount of money.According to DiStefano, about 157,000 West Virginia taxpayers, or 21 percent of state residents who filed tax returns, received federal earned income tax benefits in 2013. Total tax refunds given to state families that year came to about $347 million, for an average credit of $2,214.
Like the federal tax credit, a state earned income tax credit would be based on marital status, income and number of children in the household. Single people would be eligible for less of a credit than those who are married, and those with children would be eligible for a larger credit than those without kids.
On the federal level, the maximum tax credit goes to families making between $10,000 and $23,000 a year. They can qualify for a credit of up to $6,424, according to a January 2016 report by the Center on Budget & Policy. The amount of the credit goes down as families earn more and is phased out completely at incomes between $39,000 and $53,000 a year, depending on marital status and the number of children in the household.
In 2013, 93 percent of tax refunds through the federal earned income tax credit program went to families with children, according to the Budget & Policy report. Center on Budget & Policy staff estimate more than 412,000 West Virginians live in a household that qualifies for the federal tax credit, including more than 174,000 children.
“The income boost provided by the EITC, along with the federal Child Tax Credit, reduces the struggles that thousands of West Virginia families face,” the West Virginia Center on Budget & Policy report concluded. “Together, the credits lifted 38,000 West Virginians, including 18,000 children, out of poverty each year, on average, from 2011 to 2013.”
Nationally, others agree. A November 2015 article by Alan Berubeand Natalie Holmes of the Brookings Institution suggests the federal earned income tax credit “has become one of the nation’s most effective tools for lifting low-income workers and their families above the poverty line.”
Business Weighs In
Currently, 26 states and the District of Columbia offer an earned income tax credit to their residents.“It’s just the right thing to do,” said Sally Cline, president of the West Virginia Bankers Association. “It helps the working poor and provides a bridge to middle income.“It provides a path to financial success,” Cline said.
Cline said according to the FDIC, 8 percent of West Virginia households are “unbanked,” meaning no one in the household has a bank account. Another 17.5 percent are “underbanked,” meaning families may have a bank account, but often are forced to rely on out-of-state payday lending services, check-checking services or fall back on borrowing or pawn shops to make ends meet.
Those who support the idea of an earned income tax credit say the lump sum of money given to struggling families allows them to buy things they’ve been putting off or make investments to improve their financial standing.
“It’s real money,” said Naomi Cohen, who with husband Henry Cohen, operated a commercial contracting business in the Lewisburg area. “They might get that money and use it for car repairs. If they don’t have a vehicle, they can’t get to work.”
The Cohens are now retired. But when they were running their business, Henry Cohen said employees would sometimes ask him to be paid under the table because they couldn’t necessarily afford to have money taken out of their checks to pay taxes.
But Cohen said that solution doesn’t really help anyone.
“If they’re off the books, they’re not paying into Social Security,” he said. “They’re not paying into the Workers’ Compensation system.”
He said an earned income tax credit provides a financial boost to low-paid workers and encourages to work within the system instead of under the table.
Ed Davis, director of the Financial Stability Partnership for the United Way of the River Cities in Huntington, also supports a state earned income tax credit for the boost it can give to working families.
Davis, a banker by trade, said the Financial Stability Partnership provides tax help and financial advice to those who need it. In one recent case, he said, a mother who had been doing the taxes for her daughter for years had been miscalculating the amount of her tax refunds because she was unaware of tax credits.
The daughter, a single mother with two children, had been getting back about $800 under her mother’s calculations. But with help from the Financial Stability Partnership, it was discovered she was eligible for $3,500.
Davis said the mother had made the mistake several years in a row, so partnership staff were able to file amended returns, getting the daughter more than $10,000 in tax refunds, which allowed her to buy a car.
“That’s the kind of thing we do,” Davis said.
Does it Stand a Chance?
“As far as welfare programs go — and that’s what it is — (an earned income tax credit) isn’t bad,” said Garrett Ballengee, director of the conservative Cardinal Institute for West Virginia Policy in Charleston. He has said the money families get through a tax credit makes its way back into the local economy.
Seth DiStefano, who has been lobbying for an earned income tax credit at the West Virginia Legislature for the past 18 months, said the idea is gaining support at the state capitol.
“There is bipartisan support for this in the state Legislature,” DiStefano said. “It has the ability to solve a political problem, and you have to work to qualify.
“I like my odds in both chambers,” DiStefano added. “Not many people are against putting money back in the pockets of voters in their own district.”
However, lawmakers are faced with a projected budget deficit of more than $400,000, and passing an earned income tax credit may not be at the top of their list of priorities during the current legislative session.
Jared Hunt, spokesman for the House of Delegates, said an earned income tax credit is not currently a priority for House Speaker Tim Armstead, R-Kanawha.
But Senate President Mitch Carmichael, R-Jackson, is sold on the benefits of an earned income tax credit and would like to see the idea given serious consideration. Carmichael said a state earned income tax credit is among the items to be discussed as the Senate considers statewide tax reform.
Carmichael has set up a select committee on tax reform to look at completely revamping West Virginia’s tax code. Ultimately, Carmichael wants to do away with the state income tax, begging the question of how the state can offer an income tax credit if there’s no income tax.
But Carmichael said you don’t have to have an income tax for the state to offer and earned income credit. He said the state could still issue the equivalent of a refund check to families who make less than a certain amount of money.
Tax reform committee chairman Robert Karnes, R-Upshur, is one of the more conservative members of the Senate. He said an earned income credit will receive serious consideration in the committee. Karnes also said the committee would consider a credit for senior citizens on fixed incomes.