California Considers Establishing State-Level Earned Income Tax Credit

Interesting.

At WSJ, "Working Poor Bank On Tax Break in Costly California":

LOS ANGELES—For 30 years, Modesto Alejandro Vasquez has supported his family of four by working as a janitor in a downtown office building here. In 2014, he made about $30,000.

Earning 25% above the federal poverty level in costly Southern California, Mr. Vasquez looks forward to this time of year, when a tax refund puts extra cash in his pocket. He said he used the money—$6,000 this year—to pay off debts and repair a computer for his daughter.

A large portion of the refund came via the federal Earned Income Tax Credit. The EITC is intended to aid the working poor by reducing the amount of taxes owed, or in many cases, like Mr. Vasquez’s, by providing a refund, based on a taxpayer’s income and number of dependents.

California lawmakers, responding to the state’s nation-leading poverty level, are considering the creation of a state EITC program. Already, half of the states and the District of Columbia offer such refunds and credits. Montana legislators are also considering a state EITC this year, and a several states are evaluating expansions of their state credits. Some of the state credits currently add as much as 50% to the federal benefit.

EITC programs aren’t popular in all quarters. Critics, including many fiscal conservatives, say the federal program is expensive, amounts to a handout to the poor and is subject to errors. They cite a report published last year by the Internal Revenue Service that found 24% of federal EITC payments made in fiscal 2013 were incorrect, including both overpayments and underpayments.

While California has a relatively high minimum wage, with the state’s level set to rise to $10 next year from $9 now, many families struggle. The state is among the five most expensive to live in, according to the federal Bureau of Economic Analysis. The U.S. Census Bureau’s Supplemental Poverty Measure, which takes government-assistance programs into account in calculating poverty rates, places California at the top of the list among the 50 states and D.C., with a poverty rate of 23.4%.

In 2013, an estimated 9.8 million Californians—more than a quarter of the population—qualified for the federal EITC. California residents accounted for $7.3 billion of the more than $66 billion federal EITC claims in 2013.

Eight previous EITC proposals have been unsuccessful in California, but some legislative leaders say the state’s economic recovery and budget surplus could make the program more affordable this time around. “Politically, it seems more viable than it has in the last decade,” said Chris Hoene, executive director of the California Budget Project, a think tank focused on the state’s low- and middle-income residents...

More.