Shumlin, Lawmakers Split On EITC Proposal

Apr 16, 2013

A new report analyzing Governor Peter Shumlin’s plan to take money from a low-income tax credit program to finance an expansion of child care services has set off a fierce debate over this issue.  And both sides are using a different set of facts to make their case.

Is Vermont’s low-income tax credit program one of the most generous in the country or do benefits from the program lag far behind most other states?   Those are some of the questions raised in a new report issued by the Public Assets Institute.

The federal Earned Income Tax Credit program is designed primarily to help low-income working households with children. The maximum credit is roughly $6,000 and Vermont participants are eligible to receive a state tax credit that represents 32 percent of their federal credit.

Here are the facts that the Governor highlights. He says only 25 states offer their own program and Vermont’s 32 percent matching rate is the second highest in the country.

He says if his plan is adopted, Vermont’s matching rate would still be more generous than half of the states that offer their own tax credit.

Opponents of the governor’s plan use a different set of facts. Jack Hoffman is a senior policy analyst at the Public Assets Institute.

Hoffman says the average federal tax credit received by Vermont households is the smallest in the country, and that the state ranks 25th when average state and federal tax credits are combined.  If the Governor’s plan is adopted, Hoffman says Vermont would fall to 47th in this category.

“The Governor has also been saying that the Earned Income Tax Credit in Vermont is too generous,” said Hoffman. “And so we thought it was useful to let people see where the people getting the Earned Income Tax Credit in Vermont fall in relation to the rest of the country.”

Mary Peterson, Vermont’s Tax Commissioner, says there’s a good reason why Vermont’s average federal tax credit is so low - it’s because the size of the federal credit is linked to household income and the number of dependents in the household.

She says Vermont’s participants have lower incomes and fewer children, and as a result, the average federal tax credit is lower.

She says Hoffman’s analysis paints an inaccurate view of Vermont’s program.

“The chart that they put out is very misleading because what it is doing is just looking at how people qualify for the federal credit,” said Peterson. “And that’s based on their earnings and their number of dependents and it has nothing to do with what the state is contributing to the EITC.”

Facing strong criticism at the Statehouse, the Governor has scaled back his plans. Originally, he proposed taking $17 million from the low-income tax credit program.

His latest plan calls for a $12 million reduction or about half of the program’s total budget. The Administration hopes lawmakers will find this reduction to be more acceptable but opponents are likely to use the new study to try to block efforts to take any money from the program.

It’s an issue that night not be resolved until the final days of the session.