Earned Income Tax Credit changes at state level will help struggling families

Complementary interplay between the federal and Maryland elements of the Earned Income Tax Credit can help struggling low-income families. More could be helped by adjusting the Maryland EITC, but after failing to pass an expanded version last year, lawmakers hope to settle a disagreement between the Senate and House approaches that torpedoed the effort.

 /PM BlogSpace Report/ Expansions to Maryland's Earned Income Tax Credit will significantly benefit low-income workers, but last year, some legislators wanted to offset these benefits with additional tax cuts for the wealthy. That dispute sunk the effort last year; this year Senate Bill 14 and its companion House Bill 2 are hoped to be on a path to passage.

Last year, a progressive and well-supported effort to improve the state’s Earned Income Tax Credit had markedly different fates in Maryland’s House of Delegates (HB 1253) and the Senate (SB 840). 

After the 2016 session bill passed in the Senate and was being considered as a cross-file in the House, it had been loaded up with a Christmas tree of goodies for the wealthy in the form of tax breaks. 

In the Revenue subcommittee of the House Ways and Means Committee, the Senate version got a disconcertingly warm welcome March 31 from subcommittee chair Jay Walker, a Prince George’s Democrat who also chairs the county House delegation. Our observers say he pooh-poohed the idea that those with household income of $140,000 and up should be considered “wealthy” – that they should instead be aided in their life-struggle with a tax break that by some accounts would cost the state over a half-billion dollars in revenue over five years. 

That $140K-plus might be chump change to Jay Walker but it looks far out of sight to the low-income families who would be benefited by expansion of the EITC. Progressive Maryland fought the proposal but the last-minute grab session doomed the bill in 2016.

Both bills were originated by the leaders of each chamber. A sound and scathing analysis by Prof. David Lublin on his Seventh State blog showed how the Senate’s 2016 bill perverted the intent of the original bill, which was to raise up the incomes and prospects for low-income families and to extend some of those benefits to single individuals trying to get a start in life in what are still very difficult economic times.

This was another nasty side effect of the work of the Augustine Commission, a group put together by the Assembly’s two honchos to sidestep a genuine legislative approach to improving the state’s economy by diversifying away from military spending, then being severely cut by sequestration.

Instead, Senate President Mike Miller and House Speaker Mike Busch put together this panel – formally, the Maryland Economic Development and Business Climate Commission -- of distinctly non-low-income Marylanders to pursue their dream of a low-tax environment. It was headed by former Lockheed CEO Norm Augustine and stacked with businessmen. Not surprisingly, their idea of an attractive business environment was lower taxes on the wealthy (as opposed to, say, good schools for their children and the children of their prospective employees).

Gov. Larry Hogan has been urging these Augustine Commission tax breaks for his fans in the business community for the last two sessions.

By Prof. Lublin’s assessment,

 “… people who earn $500K will see their taxes go down by $719, while people who earn $100K or less get no break. … The bill reduces the already modest level of progressive taxation in Maryland’s tax code. The largest gap in the marginal rates was only 1% between low and high income earners. That will decline to 0.85%... 

“Moreover, I don’t see why we need to give wealthy people significant tax breaks in order to increase the EITC. As the economy has picked up, the wealthy have seen the lion’s share of the benefit. Affluent Marylanders hardly need a break not only because they already have more but because they’ve gained a lot lately.

“In contrast, working and middle-class Marylanders have seen their earnings stagnate or decline.”

That bias in favor of the wealthy was embedded in the Senate bill, which was passed over the opposition of Sens. Ramirez, Muse, Rosapepe and Pinsky of Prince George’s County and Madaleno, Lee, Raskin and Manno of Montgomery.

Proponents, including Progressive Maryland, hope that the bill this year – ably analyzed by the Maryland Center on Economic Policy’s Natalie Neill – will survive the lootfest that the end of the session can be and survive to fulfill its promise: “as a critical, effective, and fair program that rewards hard work and boosts the economy. Yet, Maryland’s credit leaves out thousands of low-wage workers. Young people and workers without children get little or no benefit from the existing credit, even if they have very low incomes.” The bills would include those left out, as Neill details.