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F I S C A L I M P A C T R E P O R T
SPONSOR Sandoval
ORIGINAL DATE
LAST UPDATED
8/15/08 HB 4
SHORT TITLE Increase Working Families Tax Credit
SB
ANALYST Gutierrez
REVENUE (dollars in thousands)
Estimated Revenue
Recurring
or Non-Rec
Fund
Affected
FY09
FY10
FY11
(7,600.0)
(7,800.0)
(8,000.0) Recurring General Fund
(Parenthesis ( ) Indicate Revenue Decreases)
SOURCES OF INFORMATION
LFC Files
Taxation and Revenue Department (TRD)
Responses Received From
Taxation and Revenue Department
SUMMARY
Synopsis of Bill
Increase the working families tax credit by 25 percent, beginning for tax year 2008 (personal
income tax returns filed in 2009). The percentage of the federal EITC would be raised from 8
percent to 10 percent. All of the more than 200,000 working families currently receiving the
credit would receive this 25 percent increase. The maximum amount of the credit would
increase by $96 to $482 for workers with two or more children, by $59 to $292 for workers with
one child, and by $9 to $44 for childless workers.
FISCAL IMPLICATIONS
Estimated Revenue Impact*
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 09-13
Fund(s) Affected
(7,600) (7,800) (8,000) (8,300) (8,500) (40,200) General Fund
* In thousands of dollars. Parentheses ( ) indicate a revenue loss.
Source: Taxation and Revenue Department
pg_0002
House Bill 4 – Page
2
SIGNIFICANT ISSUES
LFC is concerned that the reduction in recurring revenues will be enacted prior to reviewing
agency budget requests for FY10.
The distributional impact of the increase in the Working Families Tax credit in 2008, is shown
below.
Number of
Total
Average
Returns
Benefits
Benefit
AGI
(000)
($ millions)
($)
Under $10,000
72.1
$1.75
$24
$10,000 - $20,000
65.7
$3.87
$59
$20,000 - $30,000
46.0
$1.75
$38
$30,000 - $50,000
16.5
$0.22
$13
$50,000 and over
-
-
-
Total
200.3
$7.60
$38
Taxation and Revenue Department
July 16, 2008
Office of Tax Analysis, Research and Statistics
Distribution of the Increase in the Working Families Tax Credit
All Credit Recipients
Twenty-four states (counting the District of Columbia) have enacted an Earned Income Tax
Credit (EITC), for low- and moderate-income working families. According to the Center on
Budget and Policy Priorities, empirical research has repeatedly confirmed that both the federal
and state EITCs increase workforce participation among eligible families and increasing the size
of an EITC increases this effect. New Mexico first introduced the state EIC in 2007.
TABLE
1:
STATE EARNED INCOME TAX CREDITS BASED ON THE FEDERAL EITC
State
Percentage of Federal Credit (Tax
Year 2008 Except as Noted)
Refundable.
Workers Without
Qualifying Children
Eligible.
Delaware
20%
No
Yes
District of Columbia
40%
Yes
Yes
Indiana
6%
(to 9% in 2009)
Yes
Yes
Illinois
5%
Yes
Yes
Iowa
7%
Yes
Yes
Kansas
17%
Yes
Yes
Louisiana
3.5%
Yes
Yes
Maine
5%
No
Yes
pg_0003
House Bill 4 – Page
3
TABLE
1:
STATE EARNED INCOME TAX CREDITS BASED ON THE FEDERAL EITC
State
Percentage of Federal Credit (Tax
Year 2008 Except as Noted)
Refundable.
Workers Without
Qualifying Children
Eligible.
Massachusetts
15%
Yes
Yes
Michigan
10% (to 20% in 2009)
Yes
Yes
Minnesota
b
Average 33%
Yes
Yes
Nebraska
10%
Yes
Yes
New Jersey
22.5%
(to 25% in 2009)
Yes
Yes
New Mexico
8%
Yes
Yes
New York
c
30%
Yes
Yes
North Carolina
d
3.5%
Yes
Yes
Oklahoma
5%
Yes
Yes
Oregon
e
6%
Yes
Yes
Rhode Island
25%
Partially
f
Yes
Vermont
32%
Yes
Yes
Washington
5% (to 10% in 2010)
g
Yes
Yes
Wisconsin
4% — one child
Yes
No
14% — two children
43% — three children
Notes: From 1999 to 2001, Colorado offered a 10% refundable EITC financed from required rebates under the state’s “TABOR” amendment.
Those rebates, and hence the EITC, were suspended beginning in 2002 due to lack of funds and again in 2005 as a result of a voter-approved five-
year suspension of TABOR. Under current law, the rebates will resume in 2011, but a recent income tax cut that also depends on the rebates is
likely to exhaust the funds, leaving the EITC unfunded.
a
Maryland also offers a non-refundable EITC set at 50 percent of the federal credit. Taxpayers in effect may claim either the refundable credit or
the non-refundable credit, but not both.
b
Minnesota’s credit for families with children, unlike the other credits shown in this table, is not expressly structured as a percentage of the
federal credit. Depending on income level, the credit for families with children may range from 25 percent to 45 percent of the federal credit;
taxpayers without children may receive a 25 percent credit.
c
Should the federal government reduce New York’s share of the TANF block grant, the New York credit would be reduced automatically to the
1999 level of 20 percent.
d
North Carolina's EITC is scheduled to expire in 2013.
e
Oregon's EITC is scheduled to expire at the end of 2013.
f
Rhode Island made a very small portion of its EITC refundable effective in TY 2003. In 2006, the refundable portion was increased from 10
percent to 15 percent of the nonrefundable credit (i.e., 3.75 percent of the federal EITC)
e
Washington’s EITC is worth five percent of the federal EITC or $25, whichever is greater. When the matching rate rises to ten percent in 2010,
the minimum value will rise to $50.
Source: Economic Policy Institute (
www.epi.org
)
pg_0004
House Bill 4 – Page
4
ADMINISTRATIVE IMPLICATIONS
Forms and instruction will need to be changed as part of regular update for next tax year and
staff training. TRD did not report the need for additional funding.
BLG/mt