Lift Ohio kids out of poverty with reformed state EITC
Posted November 09, 2018 in Press Releases
Despite low unemployment, poverty is high in Ohio, especially for children. Cleveland has the highest childhood poverty rate of any large city in the nation. Cincinnati has the third highest. Thirty-five percent of Ohio’s poorest workers could get an average tax cut of $473 and more than $427.5 million could go back to families and local economies if Ohio lawmakers reform the state Earned Income Tax Credit (EITC), according to Policy Matters Ohio.
The EITC boosts incomes of low- and moderate-income households with a credit based on income earned through work. The federal government, 26 states and Washington D.C. have EITCs. Ohio’s is one of the weakest.
“Strengthening the state EITC will help Ohio’s kids succeed,” said Policy Matters Project Director Hannah Halbert. “The credit is correlated with healthier babies. Rates of low birth weight decrease with increased EITC income. Kids in households that receive refundable tax credits have higher college going rates and better employment outcomes that peers who do not receive extra support. Despite all the potential benefits to communities and families, Ohio policymakers refused to get the most out of the state EITC.”
Ohio is one of four states with a credit that is not refundable. This deeply undermines the policy’s effectiveness. Refundability allows workers to get the credit’s full value regardless of their income tax liability. In refundable states, the amount of the credit that exceeds the taxpayer’s state income tax liability is returned as a tax refund. The average Ohio EITC for people earning between $23,000 and $40,000 is $120. If the claimant has $100 in tax liability, the remaining $20 of EITC is lost. In a refundable state, the $20 would be part of a tax refund. This makes Ohio’s credit so weak that 95 percent of the poorest Ohioans don’t receive it.
Also weakening Ohio’s credit is its small size - just 10 percent of the federal EITC, and an odd income cap that creates a steep benefit cliff. Claimants with taxable income over $20,000 can claim only half their total income tax liability as EITC, even if they are otherwise eligible for more.
“Ohio can make its credit work better by making it more like the EITC in other states,” Halbert said. “Ohio’s children deserve an EITC that really works.”