EITC Grants Do Nothing for Middle Class

Two examples showing results from the EITC Refund Calculator (Commonwealth Institute).  There is no benefit to taxpayers earning $30,000 or more.  An increase in the standard deduction benefits them instead.

The Earned Income Tax Credit (EITC) proposal that Virginia Democrats are pushing for passage in the 2019 General Assembly is being sold as a major financial boon for the middle class, but is it?

“Our working families making $54,000 a year or less are not going to see a big benefit from these federal tax changes,” Governor Ralph Northam told legislators on December 18. “Those are the Virginians who already see a disproportionate part of their paychecks go to taxes.  They deserve to keep more of their paychecks.”

Northam is off by more than $25,000.  Using the simple EITC Refund Calculator on the website of Commonwealth Institute for Fiscal Analysis, the EITC’s strongest proponent, it becomes clear the EITC grants will mainly go to taxpayers earning $25,000 or less, and the rhetoric about middle class families is misleading.  For taxpayers earning more than $25,000 the benefit from his proposal disappears quickly.  

You can find several examples here.  Or go to the website and try your own examples.  You quickly begin to understand how the EITC works.  It’s a useful tool.

The federal Earned Income Tax Credit is a complicated formula based on income and family size, and on federal side any amount above the tax owed becomes a cash payment to the taxpayer.  The state EITC amount is 20 percent of the federal amount but produces no cash payment once the state tax liability is satisfied.  Northam wants to change than and start writing checks for the balance.  The payments will total $206 million in 2020, he said.

“That’s why I proposed earlier this year that we make the Earned Income Tax Credit fully refundable. This work credit—which we already have—goes to our working, middle-class Virginians like our teachers and first responders,”  Northam said.  The bottom line is that statement is not true because the salaries those workers earn will be too high for a grant.

Taxpayers earning up to and even over $50,000 can (and already do) qualify for a state EITC credit, which reduces or eliminates their state income tax payments, but incomes that high will not qualify for the proposed refund payments.  The break point for a couple with two children is approximately $30,000 in income and for single person with two children is approximately $26,000 in income.  Above that income, people would not receive a check from Governor Northam’s proposal, but rather would benefit from a higher standard deduction.

For a single parent with two children earning $15,000, the Virginia EITC cash grant would be substantial, $812.  The amount is even larger for a married couple earning $15,000, who receive a check for a $1,009 balance after their tax bill was eliminated.  (The payments are made after tax returns are filed, in the same manner as a refund, but of course these are dollars beyond what they paid in withholding taxes.  It is not really a refund.)

But a single parent with two children earning $30,000 would receive no benefit from Northam’s proposal, and would still owe $469 in state income tax.  That person would instead benefit from any increase in the standard deduction.   A couple with two children and that same income (and that might be two persons earning under $10 an hour) receive no EITC refund and still owe a modest $4 in state income tax.

These examples are all from using the Commonwealth Institute’s own  calculation tool, which also shows how the EITC reduces taxes at incomes in the $30-50,000 range but does not eliminate them and thus will not produce a cash payment.  People earning at those levels would see a substantial benefit from doubling the standard deduction, $345 in lower taxes for joint filers.  Those estimates were added in by me.

To double the standard deduction is the proposal that allows people “to keep more of their paychecks.”  That is a tax policy response to the challenge and opportunity created by the windfall tax collections due to federal tax changes.  The Commonwealth Institute/Governor Northam proposal is a cash transfer payment to (admittedly struggling) people who already owe no income tax.

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13 responses to “EITC Grants Do Nothing for Middle Class”

  1. The modern American welfare state creates huge disincentives for poor families to climb the income ladder. As Steve has documented in previous posts, the loss of welfare benefits can make some households literally worse off when they earn more. Northam’s EITC proposal will magnify the problem. Perhaps legislative staff could generate new calculations — updated to reflect the new federal tax code and Northam’s proposal — to show the income/benefits tradeoff.

    1. Steve Haner Avatar
      Steve Haner

      The cliff on this surprised me quite a bit. I didn’t really see how dramatically it all dropped off until I played with the calculator.

  2. Steve Haner Avatar
    Steve Haner

    Then there is today’s Washington Post, getting just about every detail wrong. They buy into the lie that the EITC grants will help people in the $50K range (lie, but the Dems do say it) and then add a new lie that any effort dealing with itemized deduction will benefit only $125K and up. The proposal to double the standard deduction (reaching 2+ million households) is mentioned once. Just about every single detail on taxes in this story is 100 percent wrong. A once great newspaper just collapses into leftist mush.


    1. Reed Fawell 3rd Avatar
      Reed Fawell 3rd

      The misinformation (lies?) that you point out in the Washington Post article are serious as a heart attack. Misinformation, misrepresentation, gross slants of the truth, rampant bias, omitted essential facts, sloppy reporting – all this misinforms the Post’s readers, and the nation, and takes away from its readers their right to an informed vote and informed opinions, not to mention the right to know what is really going around them.

      I subscribed to the Washington for 40 years (1970-2010), read it most everyday since 1957. It had it’s ups and downs. I remember them extremely well, but still most of the time it was a great paper. This is not the worse era of the Washington Post. But it is nowhere near the great paper it so often used to be, not anywhere close. Many of its articles today do far more harm than good. Like its story here discussed. And the one last week. These of course are the most obvious. The math is all wrong. But open the Post on most any day, and you’ll find agenda driven news on a big slant. And only sometimes will you find a great news story, or well reported highly informative smaller story that use to be everywhere all over the Washington Post.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        Yesterday, immediately above, I wrote:

        “But open the Post on most any day, and you’ll find agenda driven news on a big slant.”

        Today’s Wall Street Journal confirmed an example of how the Washington Post makes its “agenda driven news on a big slant.” The Post reported this:

        “President Trump touched down Wednesday in Iraq in his first visit to the conflict zone as commander in chief, a week after announcing a victory over the Islamic State that his own Pentagon and State Department days earlier said remained incomplete.”

        “The president’s visit to Al Asad Air Base west of Baghdad, which was shrouded in secrecy, follows month’s of public pressure for him to spend time with troops deployed to conflicts in the Middle East and punctuates the biggest week of turmoil the Pentagon has faced in his presidency.”

        Said the Wall Journal about this front page Washington Post Story:

        “We’ll admit we stopped reading there, so perhaps there was some actual news later in the story… These reporters can’t even begin a news account of a presidential visit to a military base without working in a compilation of Mr. Trump’s controversies, contradictions, and failings … The point is that such gratuitously negative reporting undermines the credibility of the press without Mr. Trump having to say a word.” End of quote from “The Constant Spin Zone” editorial in today’s Wall Street Journal.

        I would add: This technique of spinning the news has been a constant presence in front page articles of the Washington Post since the early 1990’s, beginning with the Post’s reporting on the congressional hearing of Clarence Thomas nomination for the Supreme Court, after Leonard Downie Jr. replaced Ben Bradlee as Executive Editor of the Washington Post.

        Downie’s tenure marked the beginning of a long, but uneven, decline in the quality, objectivity, and reliability of the news reporting found in the Washington Post, that continues to this day.

  3. Reed Fawell 3rd Avatar
    Reed Fawell 3rd

    This is a superb piece of journalism. It’s reporting real news intentionally hidden before, a government act that, if implemented, will greatly impact the middle class, taking money out of middle class pockets without telling them the truth of that it is doing.

    Steve, is the proposal really simply a cash transfer payment to (admittedly struggling) people who already owe no income tax?

    Or is that one of many ways to view it?

    Are the middle class in Virginia not struggling too? And are not their costs often far higher? They get no government subsidy, got all kinds of taxes and fees and charges, and unavoidable costs?

    So why should they get no relief here or have to pay taxes at all?

    Who does this government work for and why? Why does the middle class always get left out. Again, and again, and again. No matter the issue, roads, taxes, education. You name it, the middle class, particularly those who work get left out, and get no respect either.


    Wonder what happens next?

    Great reporting!

  4. Steve Haner Avatar
    Steve Haner

    The middle class needs to get their uniforms on and come on down to the Capitol.


    1. Yellow Vesters arise! As for Laura Vozzella of the WaPo, how can we expect better reporting on this without complaining? Will Sen. Stuart undertake to educate her on his proposal and why he differs so much from his “close friend” the Gov.? Where is Peter Galuszka when we need him?

  5. LarrytheG Avatar

    Steve does do a fine job getting to the nub of the issues!

    don’t lose sight of why Republicans and Conservatives have always like the EITC but maybe that is changing also, eh?

    It’s true about not paying Federal Income taxes although I think to be fair – we need to recognize:

    1. – you have to have a job to get it and that means a lot less welfare!

    2. – Some of those jobs provide some level of health insurance for Mom/Dad/Kids which means less taxpayer-funded MedicAid.

    3. – EVERYONE pays FICA taxes that the contribute to folks when they retire – and again – less entitlements.

    4. – People who work – pay sales and other taxes that contribute to schools, police, roads….

    So here’s the question – is the Middle Class – after taking into account all these other things they also pay for – are they better off if with those lower-income folks working and getting EITC or not getting it and not working?

    I suppose there is a 3rd choice – they work but don’t get EITC but some GOP/Conservatives folks have supported it in the past on the premise that the EITC incentivizes people working… instead of not – and getting entitlements and THAT “helps” the Middle Class also!

  6. Steve Haner Avatar
    Steve Haner

    The EITC approach has been highly successful at the federal level and nobody squawked, as I recall, when a state-level benefit was added as a way to reduce or eliminate state income tax on those lower-income working families. It should stay in place. But adding the “refundable” element at the state level provides measurable benefit to a narrow band of recipients. Look at those examples I ran for people earning $30,000 – both a couple and a single parent. Even somebody at $25,000 got a “refund” of $22.

    And as my earlier post on the EITC and TANF pointed out, people earning $10 an hour or less still qualify to plenty of other forms of public assistance.
    Jim’s first comment was right, this just magnifies that effect.

  7. […] today’s earlier EITC discussion demonstrated (two posts back), this whole process has already blown past facts and moved straight […]

  8. […] was demonstrated in an earlier article, the Earned Income Tax Credit grant process that Governor Ralph Northam is promoting provides […]

  9. […] Jay Jones, D-Norfolk, has that bill.  Last year Governor Northam was all over that idea, but now the path to “justice” is spend, spend, spend.  He has proposed higher taxes […]

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