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State-level earned income tax credits

Monday, October 10, 2016 8:21
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(Before It's News)

I was the discussant at the very last panel of the NYU-UCLA Tax Policy Conference.  This had the disadvantage of putting me in front of a half-empty room, as many of the participants had already fled for the airport or the LA freeways in advance of maximum rush-hour gridlock.  For this reason, I never like going last at a conference, although by definition it's bound to happen to somebody.

The upside was that at least I got to comment on an interesting paper: “Upward Mobility and State-Level EITCs,” by Kim Rueben, Frank Sammartino, and Kirk Stark.  They discuss the different by which various states supplement or otherwise add to the federal income tax system's earned income tax credit for low-earners.

There are a number of different ways in which a given state can supplement the EITC. For example, a number of states simply have a straight “piggyback,” adding a specified percentage to the amount provided by the federal EITC. Other states choose to target the state-level EITCs in particular fashions, e.g., by focusing on particular populations.  Thus, the District of Columbia expands the EITC for childless individuals.  California enhances it for the lowest-wage workers who are eligible for the federal EITC, and phases it out even while the federal EITC is still expanding for people in the upper regions of the federal phase-in.

Among the most interesting issues raised by the Rueben-Sammartino-Stark paper, and by the provisions that they discuss, are those pertaining to (1) why have an EITC and how it might optimally be designed in the single-government case, (2) fiscal federalism and the state versus federal question, and (3) interactions between the federal and state EITCs, and how they might be viewed from the federal perspective.  E.g., to what are the states expanding versus modifying versus contradicting / offsetting the policy aims of the federal EITC.

The slides for my comments, which offer some preliminary reflections on these questions, can be found here.

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