With Maine’s 126th legislature adjourning for the summer, a great opportunity remains to improve financial independence for more than 40,000 working Mainers. LD 455, shelved until the legislature reconvenes in the fall, would expand Maine’s Earned Income Credit (EIC) and benefit the families who need it most –those with at least one member working, but who still struggle to get by.
Maine’s slow recovery in the wake of the recession has hit working Maine families the hardest. According to the Economic Policy Institute, the real wages for the bottom half of Mainers by income have decreased since 2007, weakening Mainers’ purchasing power and increasing the financial challenges of supporting a family. The EIC is Maine’s version of the federal Earned Income Tax Credit (EITC). Like the federal program, Maine’s EIC reduces the tax burden on low-income working families. While the federal EITC reduces federal income taxes, Maine’s EIC works to lessen state income taxes. Currently, Maine’s EIC pays 5% of the amount the federal government offers through their EITC. LD 455 would raise Maine’s EIC to 10% of the federal level, benefiting working Mainers.
The federal EITC is a highly successful program that supports the ability to work for lower-income Americans, especially those with children. According to the Tax Policy Center, in 2013 the average credit for a family with one or more children was $2,828, while a family without children received $280 from the EITC. The EITC is refundable, so if the deduction is greater than the filer’s tax liability, the government will pay the difference back to the taxpayer. LD 455 would also make Maine’s EIC refundable.
Since the credit only applies if the household has earned income, the EITC provides an increased incentive to work, even if it is in a minimum wage job. The National Bureau of Economic Research has found that over 500,000 Americans shifted from welfare to work because of a large expansion to the EITC in the 1990s. The benefits extended into the next generation as well. One study has shown that a $3,000 EITC credit to a family with a child under age 6 increases that child’s annual work by 135 hours when they are adults. Furthermore, the child’s annual income increases by 17% when they are between the ages of 25 and 37[1]. This is primarily due to the better nutritional health the EITC affords the child, which increases both productivity and work longevity in life. Not only does the EITC then benefit all members of the recipient family, but it also later benefits all of us by enhancing worker efficiency and lowering reliance on government aid. The EITC also offsets some of its own costs in the form of greater tax revenues from the higher wages the children of EITC recipients earn.
LD 455 would put more money into the pockets of working families, increasing their spending on necessities such as housing, food, and car repairs. This benefits local businesses and grows our economy. Expanding Maine’s EIC is a proven way of helping the most vulnerable Mainers and their children through work.
The work of the legislature is not over. When they reconvene in the fall, legislators should pass LD 455 and make an already successful program even more effective.
