Following Up on EITC


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.

  • Tommy Cranston

    Since we are on budget minutiae can you, or anyone else, answer these 3 specific questions:
    1. How much does the cigarette tax bring in per year?
    2. Does the FY 16 (and beyond for that matter) budget take into account drastically reduced gambling revenues from the imminent start of Massachusetts gambling?
    3. Do the out year budgets starting with FY 17 reflect the state’s costs of the new Medicaid Expansion welfare program as the “free” federal money ends on 12/31/16? By FY 21 the state’s cost will be 10% which will be I believe in the $75 million range if not more.

    Thanks to you or anyone else with these answers.

  • Greg

    Tommy C: Rest assured our leaders are cooking up higher taxes to cover the projected shortfalls. Also, you can bet the cigarette tax has fallen as smokers have scrambled to find a cheaper smoke i.e. roll their own, buy on the black market. Another leftist achievement that has hit the poorest among us more than any other group. Way to go retards!