While looking into Rhode Island’s earned income tax credit (EITC) benefit for lower-income workers, I asked Director of Revenue Analysis Paul Dion to clarify something in the revenue expenditure report that his office maintains. The answer might put Governor Raimondo’s proposal to increase the EITC in a new light.
Under current law, recipients of the EITC can receive 10% of the federal version of the benefit, and 100% of it is refundable, meaning that even if the credit is greater than their actual tax liability, they get the money back as a refund. (I have confirmed, by the way, that beneficiaries do actually have to have some taxable income.)
The estimates for the cost of the program that I cited from the report were based on the law as it was before the General Assembly changed it last year. Before, beneficiaries could get 25% of the federal EITC, but they would only receive 15% of a resulting refund.
That change slipped through without much notice, though, because budget documents paired it with a reduction of property tax relief for elderly and disabled residents. The two changes together actually had a taxpayer savings of $3.9 million. I, for one, had thought that meant the EITC change turned out to be a reduction, so both parts of the package were cuts.
According to Dion, that was not the case. The EITC change actually increased the cost of the program by $4,293,291. Roughly speaking, then, the cost of the program, in 2015, is more like $16 million, rather than $12.2 million, with an average benefit of $167 per year.
For the next budget year, Raimondo’s benefit increase would bring the total program up to $19.1 million, about a 70% increase over two years, bringing the total average benefit to around $192 per year. The following year would bring the program’s cost up to $22 million or so, because the budget increases it by the same increment in the second year, essentially doubling the cost from its 2014 base.
Can Rhode Island really afford to continue ratcheting up its degree of income redistribution? Add in other burdens on the economy, like the continually growing minimum wage, and it’s little wonder that our labor force is shrinking and employment struggling.