By JOHN WHITTAKER
Legislation was introduced to add Pennsylvania to the states offering an earned income tax credit on state taxes.
Sen. Mario Scavello, R-Monroe/Northampton, introduced Senate Bill 1082 with bipartisan support of two Republicans, two Democrats and a registered independent as co-sponsors. The bill has been sent to the Senate Finance Committee
“Inability to afford basic necessities is all too common for many low-income working households in the Commonwealth,” Scavello wrote in his legislative memorandum.
“The COVID-19 pandemic has only made this problem worse for many, and it’s time we adopted a sensible solution that helps low-income working families.”
The Earned Income Tax Credit helps low-to-middle income workers and families get tax relief. Eligible individuals can use the credit to reduce the taxes they owe or increase their refund. The federal government has offered the EITC since 1975, but several states also have a statewide earned income tax program for state taxes.
In January, United Way of Pennsylvania called on state legislators to approve an earned income tax credit after a study showed that for every dollar in cost to the state budget, a refundable EITC will generate a $7 return from additional state and local tax revenue, business revenue, and reduced public assistance spending.
A state EITC is expected to increase labor force participation and work hours, reduce child poverty, reduce the number of low birth weight births, reduce child maltreatment and entry into foster care, improve educational attainment, increase access to health insurance coverage among children, reduce violent crime, and help prevent adult suicides.
When a state EITC is combined with Pennsylvania’s current tax exemption program, 1 in 4 Pennsylvanians would receive some form of state income tax relief.
“A refundable earned income tax credit at the state level would be a resounding victory for working Pennsylvanians, our state’s businesses of all sizes, and state and local governments. When eligible households recover part of their income, the majority reinvests it in the economy to help meet household needs. That’s why several states across the country have increased their EITCs as part of a strategy to help bounce back from the pandemic. 2022 is the year for Pennsylvania to join the ranks of the majority of states that have a state earned income tax credit,” said Kristen Rotz, president of United Way of Pennsylvania.
According to the National Conference of State Legislatures, state EITC eligibility requirements often closely match federal requirements. But states retain the ability to tailor their earned income tax credit programs to their constituents. The Wisconsin credit does not apply to childless workers, and the California credit focuses on a narrower segment of income levels than the federal credit. Some states calculate their tax credits as a simple percentage of the federal credit, ranging from 3% in Montana to 125% in South Carolina. From 2023, Washington will offer fixed dollar amounts.
“For the Commonwealth, this policy could solve several problems, including meeting the financial needs of families, while addressing the projected shortfalls in our Commonwealth in the years to come,” he added. Scavello wrote. “The COVID-19 pandemic has exacerbated many issues facing our community. Please join me in supporting the enactment of an Earned Income Tax Credit, which is an important first step in helping low-income working families, stabilizing local economies and generating additional revenue for the Commonwealth.