Art Woolf is a columnist for VTDigger. Woolf recently retired as an associate professor of economics at the University of Vermont. He served for three years as state economist for Gov. Madeleine Kunin beginning in 1988
If you were designing a program to reduce poverty, one component would probably be to help working people earn enough to help them rise above a poverty level of existence. That’s exactly what Vermont’s Earned Income Tax Credit does. In 2017 more than 40,000 low- and moderate-income working Vermonters received nearly $25 million from the state to supplement their market wages, and an additional $69 million from the federal government.
The EITC is essentially a wage supplement, giving low income workers a pay boost. This year, for example, a married couple with two children earning $25,000 will be eligible for a $5,800 federal EITC and another $2,100 from Vermont. Their $25,000 wage income is therefore supplemented by an additional $7,900, giving them a total income of $32,900.
More than half of the 40,000 families who received the Vermont and federal EITC had an income under $15,000 and another quarter earned between $15,000 and $30,000. Those families received an average of $625 from the state and $1,725 from the federal government.
Even if your family income is not that low, a check for $2,350 is a big deal. It’s a much bigger deal for a low-income family. And the EITC is a refundable tax credit, which means that even if the family has no federal or state income tax liability, they get a check from the government.
Something interesting has been going on with EITC recipients in Vermont. Over the last four years the number of taxpayers receiving the EITC has been declining, and it was flat for the previous four years.
Eligibility requirements have not been tightened, which must mean fewer Vermonters are earning low enough incomes that qualify them for the EITC. That’s good news for the state economy — not because it’s costing the state less money for the program, although the state is spending $2 million less than it was a few years ago. It’s good news because it means low income working Vermonters are earning more and therefore don’t qualify for the program.
The EITC has a lot going for it as a public policy program. First, it raises the effective wage a worker in a low-income family receives but it doesn’t use scarce state resources to give benefits to low-wage workers who live in a middle or high-income family. That is, it targets low-wage workers in low-income families — exactly the people we would like to help.
Second, it encourages people with low incomes to work, by raising their effective wage by as much as 20% or 30%.
Third, it does this without discouraging employers from hiring these people.
Fourth, it’s an anti-poverty program with very low overhead costs. It is administered at the federal and state levels by the IRS and the Vermont Tax Department. There is no need for a large, or even small, bureaucracy to manage it.
The EITC is a good program but it could be improved. Vermont already has one of the highest EITC piggyback rates in the nation, at 36% of the federal EITC, but it could be increased.
In addition, the EITC provides very little in the way of benefits to low-wage, low-income workers without children. Some low-income workers don’t have kids and assisting them would be a good way to help Vermont’s working poor.
The biggest shortcoming of the EITC as an anti-poverty tool is that it provides no assistance to poor Vermonters who don’t work at all. That’s a much harder problem to tackle.
