Foon Rhee

Income inequality is high, so why not broaden tax credit?

Assemblywoman Cristina Garcia, D-Bell, applauds the inclusion of $400 million for early education and child care in the 2016-17 state budget as she urges lawmakers to approve it on June 15. While advocacy groups agree, they also question less money for the earned income tax credit.
Assemblywoman Cristina Garcia, D-Bell, applauds the inclusion of $400 million for early education and child care in the 2016-17 state budget as she urges lawmakers to approve it on June 15. While advocacy groups agree, they also question less money for the earned income tax credit. Associated Press

In a new look at how terribly unequal America has become, it’s painfully obvious that the top 1 percent in California is doing far, far better than everyone else.

Nationwide, the top 1 percent earned 25 times as much as the bottom 99 percent. At 29 times as much, the Golden State ranked seventh worst for the ratio between the average income for the top 1 percent in the state (more than $1.4 million) and the average income for the rest of us (about $49,000).

California was also among 24 states where the top 1 percent gobbled up at least half of all income growth between 2009 and 2013 and among 10 states where the 1 percent’s share of income jumped the most between 1979 and 2013, says the Economic Policy Institute study.

But it could be worse.

The average income for the 1 percent was more than 40 times greater in three states: Connecticut, New York and Wyoming. And in 15 states, the top 1 percent grabbed all income growth between 2009 and 2013.

However you slice the inequality numbers, it’s not pretty.

That’s why it’s frustrating to see what’s happened with one of the best and newest tools to help California families who are working hard but still struggling.

A state version of the federal earned income tax credit started last year; the average payment was $524, not chump change for families on the edge.

Last year, Gov. Jerry Brown and the Legislature budgeted $380 million for the tax credit. But this year in the budget deal, they set aside only $295 million in 2016-17, in part because participation wasn’t as high as projected. In 2015, 362,000 households claimed a total of $190 million in credits on their state tax returns, far fewer than the 600,000 households thought eligible.

Under the current rules, workers with no children can claim a credit of as much as $214 and earn as much as $6,580 and still qualify; those with two kids can claim a credit of as much as $2,358 and make as much as $13,870.

That income limit is far below the $20,800 a year earned by a full-time worker at the state’s current $10-an-hour minimum wage. And unlike the federal credit and credits in some other states, only income from wages counts toward claiming the credit, not income from self employment. That change was made to discourage fraud.

While the Brown administration insists that no one who qualifies will be turned down for the credit, advocates for the poor say that instead of cutting the budget allocation, the state could have made more people eligible and raised the income threshold so the full amount would be used.

It’s good that the new budget increases funding to get the word out from $600,000 to $2 million and specifies that the money should go mostly to nonprofits and community groups.

Advocates are also pushing to expand the federal earned income tax credit, which puts more than $7 billion annually in the pockets of 3.1 million California families. It provides nearly $3,400 for families with one child and more for those with more children, but most workers without children at home can’t claim the credit. The Urban Institute is among groups that say they should be eligible as well.

I’m with the advocates on this one. This tax credit isn’t a handout. It rewards people who actually work, and they’re likely to spend the money, thus boosting local economies. Isn’t that what we all want?

By the numbers

Rank by top-to-bottom ratio, average income of top 1 percent and average for bottom 99 percent for selected states:

  • 1. New York: $2 million, $44,163
  • 2. Connecticut: $2.4 million, $56,445
  • 4. Nevada: $1.4 million, $36,169
  • 5. Florida: $1.3 million, $36,530
  • 7. California: $1.4 million, $48,899
  • 8. Texas: $1.3 million, $48,350
  • 18. Arizona: $784,000, $38,354
  • 29. Oregon: $754,000, $40,719

Source: Economic Policy Institute

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