Seattle Post-Intelligencer, February 13, 2008: Proposal gives low-wage workers in Washington a tax break
By MICHELE RADOSEVICH AND SUE DONALDSON
GUEST COLUMNISTS
While lawmakers in “the other Washington” have put the finishing touches on an economic stimulus package that will provide checks from the federal government to many nationwide, here in Washington state, discussions are taking place on how to reduce the regressivity of our tax structure and its disproportionate effect on low-wage individuals and their families.
Currently, a “Working Families Credit” is being considered to offset the disproportionate impact of sales and use taxes on the budgets of low-income workers. The credit is proposed to be calculated on the federal Earned Income Tax Credit. The EITC is a tax reduction and wage supplement for low- and moderate-income working families. It is based on family size and earnings. For families with very low incomes, the amount of the credit increases as earnings increase until it reaches the maximum for that family size — $438 for families with no children, $2,917 for families with one child, and $4,824 for families with two children. (These amounts are based on 2008 figures.) The credit phases out completely when incomes approach $40,000 depending on family size.
In 2003, about 22 million families claimed the credit. It now lifts more than 4 million people — half of them children — out of poverty. Because it targets working families, the program has received broad, bipartisan support. In 2005, 365,000 Washingtonians received $618 million via the EITC.
State and local governments have embraced the program as a means to combat poverty. Twenty-two states, the District of Columbia and four local governments have enacted EITC programs modeled after the federal program. All the programs use federal eligibility rules and the vast majority expresses the credit as a percentage of the federal credit. Most are refundable credits — an eligible recipient can get the full amount of the credit, even if he or she did not pay that much tax. After the credit offsets the tax, the recipient is issued a “refund” check.
Although Washington does not have an income tax, it does have one of the highest sales taxes in the country and low-income residents pay a share that is disproportionate to their incomes. As a result, the Institute of Taxation and Economic Policy has labeled Washington’s tax system the most regressive in the nation.
The proposed Working Families Credit could not only help alleviate poverty in Washington but also make our tax system less regressive. As currently proposed, the exemption would be a payment calculated at a rate of 10 percent of the EITC that the worker received from the federal government. It is estimated that 350,000 households in the state could benefit.
It is small step, but an important one in the right direction.
Michele Radosevich is a partner in the law firm of Davis Wright Tremaine, working pro bono with Washington Appleseed Center for Law in the Public Interest. Sue Donaldson is the executive director of Washington Appleseed.