Capitol Alert

Assembly Democrats want tax credit for low-income Californians

Gov. Jerry Brown and Assembly Speaker Toni Atkins walk together in March. Brown was noncommittal about a state earned-income tax credit proposed Tuesday by Atkins.
Gov. Jerry Brown and Assembly Speaker Toni Atkins walk together in March. Brown was noncommittal about a state earned-income tax credit proposed Tuesday by Atkins. The Associated Press

With California tax revenue exceeding estimates by billions of dollars, Assembly Democrats unveiled a list of budget priorities Tuesday that includes the creation of a tax credit program meant to help millions of low-income workers.

The “fixing the future” blueprint comes a little more than a week before Gov. Jerry Brown releases a revised version of his January budget proposal that will reflect several billion dollars of additional money.

Some of Tuesday’s priorities have been put forward earlier by Assembly Speaker Toni Atkins and her Democratic colleagues, such as offering up to $150 million for the University of California if the system agrees to freeze in-state tuition and make other changes.

The upcoming budget marks the debut of the rainy-day reserve approved last November. It also will underscore the effects of the state’s long-standing constitutional funding guarantee for schools, which “will rightfully receive the lion’s share of growing revenues,” according to a caucus memo.

Experts say those laws leave little room for new spending for health and welfare programs, despite pleas from advocates for the poor. Assembly Democrats offer a different approach: the creation of a state version of the popular federal earned-income tax credit to decrease the tax liability of poor people. That would reduce state revenue but avoids being a direct expenditure that would put it in competition with schools and other general fund programs.

“Poverty is a major issue, so we’re looking at how we can do that,” said Assemblywoman Shirley Weber, D-San Diego, who leads the Assembly budget panel. A targeted earned-income tax credit, she said, should help “lift thousands of folks out of deep poverty.”

The Brown administration declined to comment on the tax credit proposal. In a statement, Senate President Pro Tem Kevin de León said, “We’re open to all options that address income inequality and help working families, subject to our fiscal realities.”

Created in 1975, the federal tax credit tries to encourage people to work by decreasing their tax liability. In 2012, the federal credit cost $68 billion, spread among 28 million taxpayers. About half of the states offer their own versions of the federal earned-income tax credit, according to a December report by the Legislative Analyst’s Office.

An option presented by the LAO, one that resembles what Assembly Democrats are most likely to put forward later this month, would focus on working families with the lowest incomes. About 2.7 million Californians were in households that would have benefited from this option, according to the analyst, and it would move 45,000 of them out of poverty. That scale of credit would have cost about $450 million in the 2012 tax year, the analyst estimated.

Under that approach, for example, a single filer with two dependents who earns $12,000 a year would be eligible for about $5,500 in combined state and federal credits in 2014. That is significantly higher than the roughly $4,000 that the filer would receive from the federal credit alone, according to the LAO.

Any credit would join about $50 billion in tax breaks already on the books in California, with others proposed this session covering a range of activities and industries.

Call Jim Miller, Bee Capitol Bureau, (916) 326-5521. Follow him on Twitter @jimmiller2.

Related stories from Sacramento Bee