S.C. Statehouse Report
Sunday, July 9, 2006
VIEW: http://www.statehousereport.com/columns/06.0709.credit.htm


Earned income tax credit can lift some out of poverty
By Andy Brack
Publisher
SC Statehouse Report

JULY 9, 2006 -- From the state Chamber of Commerce to the Palmetto Institute, more folks are talking about raising incomes in South Carolina to boost competitiveness and make the state stronger.

According to preliminary 2005 figures from the U.S. Department of Commerce, per capita income in the state is $28,352 - 82 percent of the national average of $34,586. South Carolina ranks 43rd nationally in per capita income.

While business and non-profit leaders are focusing on the problem, state lawmakers don't seem to have it on their radar screen. Yes, they've taken steps to try to lure more jobs here, but most of that effort seems to focus on bringing in big industries instead of pumping up small businesses. Unfortunately, any gains they see from new jobs aren't keeping up with lost jobs, particularly manufacturing jobs. In turn, that keeps the state's unemployment rate among the highest in the nation.

Perhaps it is time for state government to do more. One idea to consider is a state earned income tax credit. Some 19 states across the country have successfully implemented such a credit to help lift working low-income residents out of poverty. No Southern state has a fully refundable credit, although Virginia will implement a non-refundable version in the 2006 tax year.

An earned income tax credit is a work incentive that goes to working families. State EITCs typically are based on the federal credit, which has enjoyed bipartisan support and expansion over the last 30 years.

The federal EITC reduces or eliminates income taxes for poor and near-poor working families. Additionally, it also can provide a refund for any remaining amount of credit. It helps offset other federal payroll taxes, such as Social Security, and can help bring working family incomes above the poverty line.

Here's how the federal credit worked in 2005. If a family with two or more children had an income of less than $35,263 (or $37,263 for married couples filing jointly), the working family could receive an earned income tax credit of up to $4,400. As incomes approach the top level of income in the EITC program, the credit phases out. The maximum benefit tends to be for families with incomes around $15,000 to $18,000.

Families that take part in the federal EITC program are able to get back some of the money withheld from paychecks. If their incomes are low enough, they may receive an additional refund up to the total of $4,400, based on total income.

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Across the South, some 6.4 million working poor families took advantage of the earned income tax credit in 2003. In South Carolina, almost 415,000 of the 1.8 million federal tax returns filed included EITC claims worth $980 million. In other words, the federal government pumped almost a billion back into South Carolina to augment wages of working poor families.

But while the proven federal government strategy recognizes that an EITC is a way to boost incomes of the working poor, South Carolina hasn't responded in kind.

So that leaves working poor families in a weird place: Those with earnings so low that they get a credit refund from the federal government still have to pay state income taxes. Arguably these taxes are lower, but they put a strain on already poor working families that are trying to escape poverty.

States with EITCs generally have implemented refundable state credits based on a percentage of the federal credit, which makes it easy to administer. If, for example, a family qualified for a federal credit of $4,400, a state credit at a 10 percent level would relieve a state income tax burden of up to $440.

Yes, a refundable earned income tax credit for South Carolina would "cost" money. If South Carolina enacted a credit based on 10 percent of the federal EITC, it would have to come up with a $96 million pool to make refunds to the working poor.

But many argue that investing in working families through the credit would reduce the burden of regressive sales and property taxes. It also would reward work in a progressive way without creating a welfare program. And it certainly seems a better way to help thousands of working people than providing millions in tax incentives for big businesses that bring relatively few jobs to the state.

Andy Brack's new book of commentary, Bugging the Palmettos, is available for $15.00. Click here for more.

Recent commentary

lighter side
7/7: Boomer-in-chief

Another great cartoon from Bill McLemore:

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feedback
7
/5: Property tax reductions needed

To the editor:

Elimination of all property taxes may not be frugal, but the reduction or limiting of said taxes is becoming a necessity. To have my taxes increased every 5 years is making retirement here an impossibility. So South Carolina wants me when I am young and working, but when I retire, I better get the heck out of here and make room for more income producing folks.

The increase in the value of my home is strictly on paper. It does not happen until I sell the house. Why should I pay higher taxes because developers around me are tearing down forests to build larger, fancier housing? I am still living in the same house.

We need a cap on property tax like the initiative in California in 1979 which held property taxes at the original purchase price unless major improvements were made or the house was sold. Investors buy and sell frequently allowing the appraised value and therefore taxes to rise.Older folks buy a house for a place to live. It is not an investment, it is a home. Why should it be treated as an investment?

-- Diane Thompson, York, S.C.

6/28: Fix the tax system

To the editor:

Honestly, I think many politicians and a high percentage of the public who, purportedly, are looking out for their state [as well as themselves] just don't "get it" when it comes to taxes and the economy. I believe there are several tax code principles that, when fully enacted, will turn the SC economy into a dynamo and, coincidentally, will raise the hopes and standard of living for all South Carolinians:

1) Phase out the general sales tax. It is regressive. It is a brake on the economy.

2) Restaurant taxes, lodging taxes, gasoline taxes and sin taxes [tobacco, alcohol] are OK but they shouldn't be out of line with neighboring states - for obvious reasons. These taxes also tend to be supported at a higher percentage by out-of-state residents and it's never bad to have SC taxes paid by others.

3) To make up for lost tax revenue from the phase out of the sales taxes, add/increase the 'business profits taxes'. IF SC didn't have a sales tax, can you imagine the tremendous uptick in sales volumes by stores in SC? And those stores' now higher sales and profits [and higher profits taxes] will be heavily borne by out-of-staters. The boom in the retail sales segment of the SC economy will also be a big source of new jobs. SC could put places like the Commerce, GA outlet mall out of business. {The textile & farm based economy for SC is dying out and a major part of the future job growth for unskilled and less-educated workers will be retail sales.}

4) Keep a tight rein on property taxes, BUT don't let them get too low. Extremely low property taxes are, in effect, subsidies for the well-off. By having a minimum property tax level, the shacks and run-down properties will be less attractive to maintain as is and more attractive to fix or be re-developed. There should also be a minimum property tax on ALL vehicles, registered or unregistered, for the same reason.

5) Income and business taxes should be graduated but not punitive. NC is an example of a state that has gone done the wrong path. A graduated SC income tax that starts at, say, 3% and tops out at 6% for very large incomes would be about right.

6) Minimize/eliminate the tax exemptions & deductions for "special stuff". Mr. & Mrs. John Doe shouldn't be forced to subsidize some whim or stylish fad or feel good stuffed into the tax code by a few powerful politicians. If people want to support special causes, let them do it with their own money!

I can attest that eliminating the general sales tax and utilizing business profits taxes works. NH [my former state before moving here] is a business dynamo. In fact, NH had no state income tax either. Yet NH has fine schools and a great business climate. Neighboring Vermont [with its sales taxes, income taxes, etc.] is a state that is almost disappearing with an economy that stinks. It is not my speculation that this is a better tax stratagem, it is a proven fact.

-- Bruce D. Woods, Seneca, S.C.

Recent feedback

scorecard

Here's a "thumbs up" and "thumbs down" related to various political news items from the past week:

Thumbs up

McMaster, Lloyd. Former US Attorney for South Carolina Henry McMaster, now the state attorney general, and current US Attorney Reginald Lloyd deserve fair game awards for putting together a joint task force to go after cases of public corruption in this state. Anyone - elected and appointed state officials and local council members and other local officials - could be investigated and if there is enough evidence indicted and prosecuted. Given the growing number of indictments in small municipalities, for instance, the task force will no doubt have its double-whammy - federal and state - work cut out for it.

Warning. Fire Chief Anthony Stith of Sullivan's Island and Isle of Palms Fire Chief Ann Graham have a good idea: a rip tide warning system. With rip tides apparently more fierce and more often this year, perhaps because of environmental effects, some better means of notifying lifeguards, fire departments, beach patrols and other police agencies of warnings as they come from the National Weather Service. Almost every agrees that every agency should assure beachgoer and emergency crews know the warnings are put. A siren or horn sound might be used in addition to current efforts such as warning flags and two-way radios to lifeguards.

In the middle

The rushing Assembly. The General Assembly, for political reasons best known to be "power," decided to strip the state's Criminal Justice Academy from the Department of Public Safety and make it independent. The legislation was found to make the changeover immediate, but some of the non-state appointments had not yet been made, leaving the academy without a full board to control training all the state's policemen. The state officials, including five of the governor's cabinet and the attorney general, took up the slack until representatives of police chiefs and sheriffs can be appointed. The result: the Academy is back in service, with the same director and the same chairman as it had when it was not independent.

Smith. Sen. Verne Smith, R-Greenville, has resigned because of illness that kept him away from the Statehouse all of this year's session. The plaudits were immediate for his lengthy service; as the second in seniority in the Senate, Smith chaired the Labor, Commerce and Industry Committee. No doubt his service that concentrated on children, health and education will be remember for his intensity, but his service will also be remembered from 2000 for a more controversial issue. That is when he, as a senior Democrat, decided to switch to the Republican Party, thus pushing the Senate into becoming a majority GOP.

Thumbs down

Eckstrom. Comptroller General Richard Eckstrom is showing why he should only be in charge one time of the state Budget and Control Board. Twice now, once in the last meeting and again in news reports more recently, Eckstrom refused to vote to allow an attorney to be hired for the state Ethics Commission to defend itself against a suit. Both the attorney general's office and the commission's own attorney have potential ethical reasons not to get involved, and Eckstrom apparently has a political reason that suits him. The suit involves government in the sunshine, whether an out-of-state based conservative political organization operating in this state must give up its fiscal data to the Ethics Commission for public consumption. The organization is joined at the hip with private schooling Republican candidates, and Eckstrom is a Republican.

Council. Normally, the Legislative Audit Council would be getting applause because its investigations tend to be so thorough to state agencies. This time, well maybe not. As a creature of the Legislature, it was asked - only after reporters from The State newspaper asked legislators if they would make a complaint - to investigate the money spent on the world's first successful submarine, the H.L. Hunley, recovered near Charleston from its watery grave. The amount of state money spent is in dispute. The LAC director, George Schroeder, says it would be a conflict for it to investigate the Legislature, to which the LAC reports. The audit could still be undertaken if the General Assembly approved independent spending to an outside firm that would do the same thing as the LAC. If there's still a demand, of course.


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