Improving a Common Sense Tax Credit for Working Rhode Islanders: Increase the Rhode Island Earned Income Tax Credit

All Rhode Islanders want to be able to support their families and live in thriving communities. Yet, far too many working Rhode Islanders are struggling to pay for housing, heat, food, and health care.  Increasing Rhode Island’s refundable Earned Income Tax Credit would put more money back in the pockets of working families, improving their ability to meet their basic needs. When these families spend their money at local supermarkets and shops they provide a boost to their local economies.

Governor Raimondo has included a proposal in her budget to increase the state EITC to 15% of the federal credit in tax year 2017 and there are bills pending in the General Assembly to increase the state credit to 20% (Representative Slater H7347 / Senator Goldin S2156).

The EITC is a common sense tax break that reduces the income tax owed by low-wage working families, allowing them to keep more of their paycheck. Filers receive a federal EITC based on their income and family size. The state EITC is a percentage of the federal credit (12.5% beginning tax year 2016).

When home health aides, restaurant workers, and local fishermen can better provide for their families, our communities and our economy are stronger, and prosperity is broadly shared.

The EITC is good for local businesses and our state’s economy.

Rhode Island businesses need customers. More money in the pockets of working Rhode Islanders means more money in the cash registers of supermarkets, retailers, and other local businesses.

Workers who receive the EITC already pay a lot in taxes.

Workers who receive the EITC pay payroll taxes, sales and property taxes, and more. Rhode Island has the 5th highest taxes on low-income households in the nation with the lowest-income taxpayers paying nearly twice as much of their income towards taxes as the wealthiest Rhode Islanders.[i] Increasing the state’s Earned Income Tax Credit helps improve tax fairness.

An EITC is increasingly important in the Ocean State’s economy.

A significant number of jobs in Rhode Island pay low wages. Of the 50 occupations expected to produce the most job openings by 2022, nearly one in four will pay less than $11 per hour, the amount that the Economic Progress Institute finds a single adult needs to earn to meet his or her most basic expenses.[ii] An increased EITC allows low-wage workers to keep more of their pay, bringing much needed income back to their households.

An increased state EITC is important to workers of color.

Some Rhode Islanders are more likely to be working in lower- paying jobs than others. The median household income for African-Americans ($35,772) and Latinos ($30,797) is well below whites ($61,406), making it more likely that these workers will benefit from an increased state EITC.[iii] Latinos in particular are over-represented among EITC filers. More than one in nine of Rhode Island’s labor force is Latino, but nearly one in four of the EITC-eligible population in the state is Latino.[iv]

Neighboring states recognize the importance of strong state EITCs.

Massachusetts and Connecticut currently offer larger state EITCs than Rhode Island.  Connecticut’s s refundable state EITC is 27.5 percent of the federal credit, while Massachusetts’ refundable credit is 23 percent.

Workers in every zip code would benefit from a stronger state EITC.

The more than 83,000 EITC filers live in every city and town in the Ocean State.  From Westerly (1,171) to Woonsocket (4,624), in Providence (22,693), in Cranston (7,018), and in Newport (1,707), residents are benefiting from the EITC, bringing a boost to their local economies.[v]

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[iii] Economic Progress Institute analysis of US Census Bureau, American Community Survey data, 2015