HELENA – A Great Falls legislator is proposing that Montana enact a state version of the federal earned income tax credit to give the working poor a hand up.
Democratic Rep. Tom Jacobson presented his House Bill 592 to the House Taxation Committee on Wednesday. The panel took no immediate vote on it.
It would create a refundable state earned income tax credit equal to 10 percent of the current federal earned income tax credit. The federal credit passed in 1975.
More than 80,000 Montanans received the federal earned income tax credit in 2013. HB592 would provide a maximum yearly state benefit of $624 for a low-income, working family, the Montana Budget & Policy Center estimated.
If passed, the bill would reduce state income tax collections by $17 million a year, starting in fiscal 2016. It is not included in Gov. Steve Bullock’s budget.
Jacobson said 25 other states have enacted state earned income tax credits, ranging from 5 percent to 50 percent of the federal credit.
“It is the most direct anti-poverty measure we have,” he said. “It cuts out the middle man. It goes directly into the pockets of those who deserve it the most.”
It will help mechanics, waitresses, cashiers, ranch hands and many other Montana workers, Jacobson said.
On average nationally, recipients claim the benefit for only a year or two, adding: “This is not a lifetime benefit. It does not create dependence.”
Jacobson said those receiving the credit spend the money in their communities.
“They don’t spend it going to Disneyland,” he said. “They don’t spend it on the stock market. It pays for school clothes. They put it directly back in the pockets of our local businesses. It moves people out of poverty faster than any other program.”
Jacobson said the House Taxation Committee has passed a number of bills to cut income taxes, property taxes, taxes on business equipment and taxes on pollution control equipment – all with promises they would stimulate the economy.
But if HB592 passes, “we can put the money directly in the pockets of the people we’ve been promising it to,” Jacobson said.
Supporters of the bill included representatives of the Montana Budget & Policy Center, Food Bank Network, Credit Union Network, Women Vote, Organizing Project, Coalition of Domestic and Sexual Violence and Rural Dynamics.
No one opposed it.
Jessica Michel, a Helena grandmother and sole legal guardian for her 9-year-old granddaughter, said they live on her income and a small amount of adoption support.
She said the federal credit has provided the money to cover expenses such as car and home upkeep, day care, swimming lessons and membership in a robotic engineering club.
“This bill you’re considering will complement the federal (earned income tax credit) and enable me and my fellow Montanans to continue and increase our ability to provide a quality of life for us that will be truly and humbly appreciated,” Michel said.
Heather O’Loughlin of the Montana Budget & Policy Center said Montana is one of five states that impose income taxes on the working poor. A single person must start paying taxes with an annual income of $4,360 annually, a single parent with two children at $9,120 and a couple with two children at $13,480.
“Enacting a state earned income tax credit would help mitigate the impact these low taxation thresholds have on Montana’s families and prevent them from being driven into poverty,” she said.
O’Loughlin said a combined federal and Montana earned income tax credit would amount to a wage supplement, effectively raising the wage of a single mother who has two children by nearly $3 an hour.
She quoted the late President Ronald Reagan who called the federal earned income tax credit “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”
