Spotlight Exclusives

The Task Ahead: Promote California’s New State EITC

Alissa Anderson and Chris Hoene, California Budget & Policy Center Alissa Anderson and Chris Hoene, California Budget & Policy Center, posted on

In a significant victory for low-income working families and individuals, California lawmakers this year established the state’s first-ever refundable state Earned Income Tax Credit (EITC). Although California’s credit culminates many years of work by the California Budget & Policy Center and others, an equally significant effort lies ahead.

California’s EITC is unique, targeting workers with earnings so low they may not file state income taxes. As a result, a robust effort to increase awareness of the credit will be critical to the policy’s success.

Twenty-six states as well as the District of Columbia have implemented their own version of the highly effective federal EITC. However, unlike most state EITCs, California’s credit is available only to a portion of workers who qualify for the federal EITC—those with annual earnings from work subject to withholding that total less than about $7,000 to $14,000, depending on family size.

This means that the new credit will primarily benefit people who earn low wages and don’t work full-time or consistently throughout the year, including workers who lose their jobs or have their hours cut, as well as those unable to find steady employment due to a lack of stable housing, health problems, or other challenges.

As a credit targeted to some of the lowest earners in our state, California’s EITC has the potential to move many people toward greater economic security. When combined with the federal EITC, California’s credit will boost household income for a family with two children by as much as three-quarters—a substantial increase that will help families pay their bills, put food on the table, and keep a roof over their heads. In fact, the state EITC could lift 70,000 people – including 31,000 children – out of poverty and reduce the depth of poverty for another 1.28 million state residents.

The targeted structure of California’s EITC, however, presents a unique challenge that could limit its success. Most workers who are eligible for the credit earn so little that they are unlikely to be required to file state income taxes and are probably unfamiliar with how filing works. In other words, whether large numbers of Californians actually benefit from the state EITC will depend on how well the state and other stakeholders promote the credit and help workers who are new to tax filing claim it.

California has a strong incentive to invest in an extensive EITC campaign. Maximizing the number of people who claim the credit not only would broaden economic security in our state, but also boost our state’s economy. That’s because promoting the state credit provides an opportunity to increase federal EITC claims, which could draw millions of additional federal dollars into California, benefiting businesses, particularly in high-poverty communities where low-earning workers are likely to spend their tax refunds.

With California’s EITC now in place, much work lies ahead to ensure that it is a success for both workers and the state. The Budget Center is currently collaborating with a diverse range of stakeholders, including the Franchise Tax Board and other state agencies, EITC advocates, philanthropy, and private sector actors, to develop a statewide strategy to promote the credit and boost EITC claims. In addition, we are designing a major research effort to evaluate the credit’s implementation and identify how best to structure outreach efforts in subsequent years.

As part of this assessment, we hope to document the extent to which the credit contributes to workers’ economic well-being. Providing evidence of the EITC’s effectiveness will be critical to ensuring that the policy remains in place because, unlike a typical tax expenditure that’s automatically available each year, California’s credit must be funded annually as part of state budget negotiations. Policymakers must also decide how large a credit to provide each year, and understanding how the credit benefited workers in its first year will help inform that decision.

In addition to tracking the implementation and impact of California’s EITC, the Budget Center will be working with key partners to explore options for strengthening and expanding the credit in future years. To help lay the groundwork for this effort, we recently launched an online interactive that shows the extent to which low-earning workers stand to benefit from the state’s credit when combined with the federal EITC. In coming months, we will build on this tool so that policymakers, advocates, and other stakeholders can consider ways to broaden the credit’s reach.

We commend California policymakers for implementing a policy that has great potential to improve the lives of people living in poverty, and we look forward to the work that lies ahead to ensure that even more Californians can share in our state’s prosperity.

To print a PDF version of this document, click here.

Alissa Anderson is a senior policy analyst and Chris Hoene is executive director at the California Budget & Policy Center.

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