Low- and middle-income Delawareans could see financial relief under a bipartisan bill that would make the state’s Earned Income Tax Credit refundable.
The Earned Income Tax Credit (EITC) is the nation’s most effective anti-poverty program for working families. The federal EITC was introduced in 1975 and was designed to offset federal income taxes, social security payroll taxes, and supplemental earnings while rewarding work. About 25 states, Delaware included, have state Earned Income Tax Credits. In Delaware, the state EITC is non-refundable, reducing the tax liability but not providing a refund to residents. Non-refundable EITC might offer tax relief to families with state income tax liability, but it does not offer any benefit to working families that have income too low to owe income taxes.
Sponsored by Rep. Paul Baumbach, House Bill 253 would change the EITC from nonrefundable to refundable and capable of exceeding the tax amount otherwise due. The credit would be phased in, increasing 1 percent per year from 6 percent of the corresponding federal earned income credit in 2017 until it reaches 15 percent of the federal EITC in 2026.
“Earned Income Tax Credit is probably one of the best public policy programs that can really lift people out of poverty,” said Rep. Baumbach, D-Newark. “EITC cuts taxes for low-income families, provides incentives to work, helps stabilize income and puts families on firmer ground. Making Delaware’s Earned Income Tax Credit available to all families who qualify for the federal program will have an immensely positive effect on Delaware families, and I look forward to pushing this effort forward.”
Even those whose incomes do not meet the threshold for owing personal income tax, they do contribute to regular payroll taxes, as well as various consumption taxes, such as motor fuel tax.
According to the 2015 Kids Count Delaware report, 73,000 Delawareans filed federal EITC claims in 2014, averaging a return of $2,222 per person. The Center on Budget and Policy Priorities estimates that in 2013, the federal EITC lifted about 6.2 million people out of poverty, including about 3.2 million children. The credit reduced the severity of poverty for another 21.6 million people, including 7.8 million children.
As structured, HB 253 would have no fiscal impact on the fiscal 2016 and 2017 budgets. The fiscal impact for 2018 is expected to be less than $1 million.
HB 253 has 21 co-sponsors from both sides of the aisle and has been assigned to the House Revenue & Finance Committee.