Working Families Tax Rebate

Bill Would Help Working Families Across the State

Kim Justice — 2013-02-27T21:13:58Z

Today the House Finance Committee heard legislation that would give a tax break to more than 400,000 hard-working Washingtonians. House Bill 1890 would keep a promise to working families by closing a tax loophole for out-of-state shoppers and using the money to finally fund the Working Families Tax Rebate (WFTR).

Policy Analyst Kim Justice testified in support of the bill, here she is on TVW.

The WFTR was enacted in 2008, but never funded. With a small investment, it would make a big difference in the lives of working families.

The Working Families Tax Rebate would benefit families in every legislative district in the state (click on map below). For a table of data by legislative district, click here.

For more information on the Working Families Tax Rebate and HB 1890, click here.

The Choice is Clear: Washington State Families or an Out-of-State Tax Break?

Kim Justice — 2013-02-14T17:06:15Z

Policymakers can keep a promise to more than 400,000 hard-working Washington state families, by closing a tax loophole for out-of-state shoppers and using the money to finally fund the Working Families Tax Rebate (WFTR).

That’s the idea behind legislation introduced today (House Bill 1890) that would refund up to $206 in state retail sales taxes paid by people working at low-wage jobs in Washington state. To pay for the refund, the legislation would close a loophole that allows shoppers from other states to avoid paying sales taxes on purchases they make here.

The Working Family Tax Rebate has been law since 2008, but it has never been implemented because lawmakers have never funded it. The rebate is a vital supplement that would primarily benefit families with children, and only working families.

The Working Families Tax Rebate is based on the federal Earned Income Tax Credit (EITC), a highly successful tool for helping families move into the middle class that is particularly beneficial to children. Putting more money into the pockets of modest-income families helps boost a child’s overall well-being, leading to better health, more schooling, more hours worked later in life, and higher earnings in adulthood.

As the graphic below shows, that has proven to be the case with the EITC, and the Working Families Tax Rebate would work the same way.

Let’s get our priorities straight. Washington state’s working families need a tax break more than shoppers from out-of-state.

One Way to Improve Children’s Health: Fund the Working Families Tax Rebate

Andy Nicholas — 2012-06-06T23:14:51Z

State tax credits for lower- and moderate-income workers result in healthier children, according to a new study by the Carsey Institute. Unfortunately, Washington’s version, the Working Families Tax Rebate, hasn’t been funded since it was created in 2008. Until policy makers do so, our state will continue to miss out on the rebate’s many benefits, which also include stronger local economies and reduced poverty.

The federal Earned Income Tax Credit (EITC), which the state tax credits are modeled on, lifts more families out of poverty every year than any other federal initiative. It makes working families with children eligible for tax credits of up to $5,891 each year. The EITC is designed to encourage and reward work in lower-paying fields, providing families with critical resources to help pay bills and purchase necessities like clothing, school supplies, and medicine.

Building on the success of the federal EITC, 24 states have wisely implemented their own versions of the credit. That investment is paying off. Among other benefits, the Carsey study found that states that enacted EITCs between 1990 and 2006 saw significant increases in the number of children covered by private health insurance and reported to be in excellent health by their mothers. Children in these states were also 24 percent more likely to have visited a dentist’s office in the past year compared to those in states without EITCs.

Washington enacted an EITC in 2008. The Working Families Tax Rebate (WFTR), which was based on a proposal from the Budget & Policy Center, would give about 400,000 Washingtonians a state tax rebate of up to $589 per year.

Yet, policymakers have repeatedly failed to fund the WFTR. That’s a penny-wise and pound-foolish decision, since the rebate would reduce poverty and get more people into the workforce and spending money. The rebate would also help address inequalities in Washington’s revenue system, since modest-income households pay a larger share of their earnings in taxes than the wealthy.

For more information on the Working Families Tax Rebate, check out our policy brief and primer on this topic.

Also, check out the Carsey study for more details on how state EITCs help make children healthier.

Working Families Tax Rebate: A Wise Investment in Families and Communities

Kery Murakami — 2010-04-28T17:47:50Z

The Washington Policy Blog takes issue with money set aside in the state’s budget to administer a tax cut that will benefit some of the working families hit hardest by the recession. To set the record straight, here’s some information they left out:

Once the Working Families Tax Rebate is fully funded and implemented, it will refund a portion of the state retail sales tax to as many as 370,000 Washington households. About 97 percent of the total would flow to working families with children;
Though some state funds are needed to begin the program, it will build on the federal Earned Income Tax Credit (EITC), so that everyone who is eligible for the federal credit will also be eligible for the state rebate. The benefit of building on the EITC is that the IRS does a significant portion of the administration and enforcement. They will annually send a database to DOR which will contain a list of all Washington households who received the EITC and are therefore eligible for the state rebate. The database will also include the amount of EITC received by each family. The state rebate will simply be calculated as a straight percentage of the federal credit;
Twenty-three states (including the District of Columbia) have a state EITC that is administered as a percentage of the federal credit. The Working Families Tax Rebate would give working families in every community – particularly in rural and small metropolitan areas – an income boost. Experience in other states suggests that implementation of a state tax credit will spur more families to sign up for the federal EITC, bringing additional money into Washington homes and communities;
We’ve created a calculator to show how much the credit would be worth if it was in place today based on the number of children and the amount of earned income.** For example, a married couple with two kids and $20,000 in wages would receive $429 dollars. A single parent with one child would receive $248. The minimum credit for those who are eligible is $50; the maximum is $567.

For more information, please see our primer on the rebate.

A Primer on the Working Families Tax Rebate

Kery Murakami — 2010-04-27T23:21:47Z

The Senate proposal Tuesday morning includes the Working Families Tax Rebate, a policy developed by the Budget & Policy Center which would offer help to lower- and middle-income residents – those hit hardest by the economy.

The Budget & Policy Center has written extensively on the rebate the last couple of years:

Working Families Tax Rebate Administration Would be Straightforward and Efficient: The Working Families Tax Rebate (WFTR) was signed into law in 2008. Once the rebate is fully funded and implemented, it will refund a portion of the state retail sales tax to as many as 370,000 Washington households. But how will it work? One of the great things about the rebate is how straightforward and efficient the administration will be. (Feb 22, 2010)

How Much Would You Get? A Working Families Tax Rebate Calculator: This online tool allows you to calculate how much the credit would be worth based on filing status, number of children, and the amount of earned income.** For example, a married couple with two kids and $20,000 in wages would receive $429 dollars. A single parent with one child would receive $248. The minimum credit for those who are eligible is $50; the maximum is $567. (Feb. 3, 2010)

Working Families Rebate would Benefit Families with Children: About 97 percent of the total Working Families Tax Rebate would flow to working families with children. (Apr. 16, 2009)

Working Families Tax Rebate: Benefits by Legislative District: The map below shows the share of tax filers who would have been eligible for the WFTR by legislative district. The districts with the highest percentages of eligible Washingtonians live in rural and small metropolitan areas. For example, one in four tax filers in the Yakima area would have been eligible for the WFTR. In general, all communities in Washington would benefit. (Apr. 6, 2009)

Working Families Tax Rebate: A Tool for Economic and Fiscal Recovery: The Working Families Tax Rebate is an effective tool the state can use as part of a strategy for economic and fiscal recovery. It builds on the highly successful federal Earned Income Tax Credit, which lifts millions of people out of poverty nationwide each year. (Apr. 3, 2009)

Working Families Tax Rebate Administration Would be Straightforward and Efficient

Jeff Chapman — 2010-02-23T00:18:32Z

The Working Families Tax Rebate (WFTR) was signed into law in 2008. Once the rebate is fully funded and implemented, it will refund a portion of the state retail sales tax to as many as 370,000 Washington households. But how will it work? One of the great things about the rebate is how straightforward and efficient the administration will be.

It will build on the federal Earned Income Tax Credit (EITC), so that everyone who is eligible for the federal credit will also be eligible for the state rebate. The benefit of building on the EITC is that the IRS does a significant portion of the administration and enforcement. They will annually send a database to DOR which will contain a list of all Washington households who received the EITC and are therefore eligible for the state rebate. The database will also include the amount of EITC received by each family. The state rebate will simply be calculated as a straight percentage of the federal credit.

The Department of Revenue still has a significant role to play, of course. In the summer of 2008, I was part of an advisory group that met with DOR staff to discuss how applications for the rebate could be collected. Their work has been put on hold because of the budget crisis, but the direction they were taking was encouraging. They were developing a web-based application that would allow people to easily apply for the WFTR. It promises to be very user-friendly and accessible. The screenshot below is an example of the kind of thing the DOR was working on before the program was put on hold. It's the first of only four steps the applicant will have to follow. It’s not by any means a final version, but it gives an idea of how the application would work.

The next step for DOR would be to match the state database with the IRS data, which would already be vetted and audited. If the two match, the applicant is eligible and the DOR can process the payment.

There will need to be an outreach effort to ensure that families are aware of the rebate. This effort would build on existing programs. There is already an organized joint campaign by the state government, philanthropy, and community organizations such as the United Way to ensure that eligible people apply for the federal EITC. Those outreach materials could easily notify people about the Working Families Tax Rebate as well. Paid and volunteer tax preparers could process WFTR applications alongside federal tax returns.

While the program would be relatively simple to administer, the benefits would be significant to households and communities across the state.

Options for Raising Revenue

Andy Nicholas — 2010-02-16T21:56:29Z

As a result of the Great Recession, important public services -- like health care, education, and child care assistance -- face severe cuts. These basic public services were already slashed by about $3.6 billion last year. Taking a similarly unbalanced, cuts-only approach this year would mean cutting vital supports for working families to the bone. Such an approach would undermine our shared values like preserving our environment and helping those who are temporarily disabled. And reducing investments that foster a skilled, competitive workforce would jeopardize our economic recovery.

Instead, lawmakers should take a balanced approach that includes new revenues. The Budget & Policy Center has compiled a list of sensible revenue options that would generate enough resources to prevent further economically-damaging budget cuts this year. To view a pdf of the table along with a short description of each item, click here.

Sales Tax Options

Expanding the sales tax to include a broader array of products and services would generate more than $300 million in new resources in the current biennium. Items in this category include: extending the tax to consumer services; custom software; candy, gum, and bakery products; non-organic fertilizer; out-of-state coal; and repealing the exemption for out-of-state shoppers. Not only would these actions generate badly needed resources in the the short-term, they would also make the sales tax a more adequate and equitable instrument for financing public services in the long-run.

Policymakers should also consider temporarily increasing the state sales tax rate. Increasing the sales tax would be simplest and most straightforward method of generating enough resources to prevent damaging cuts this year. This action would be simple for the state to administer and would entail minimal compliance costs for businesses. And every 0.1 percentage-point increase the sales tax rate would generate about $100 million in additional revenue. As the table shows, increasing the sale tax to 7.5 from 6.5 percent would increase revenues by over $1 billion in FY2011.

The advantages of using the sales tax to preserve services are discussed more fully in the BPC analysis "Increasing and Modernizing the Sales Tax."

Other Tax Options

In total, the sin taxes and loophole closures included in our list would generate over $1 billion in new resources in FY2011. Increasing taxes on unhealthy or environmentally damaging substances would not only generate additional resources this year, but would also encourage consumers to make healthier purchasing decisions in the future. As such, policymakers should consider raising taxes on tobacco products along with implementing a new tax on sugar-sweetened beverages – a major contributor to the growing obesity epidemic. They should also consider increasing the Hazardous Substance Tax and creating a new tax on environmentally damaging bottled water.

Eliminating wasteful exemptions, deductions, and credits along with enacting targeted business tax increases would also generate a substantial amount of revenue this year. For example, adopting “Economic Nexus” would generate additional resources by providing a more rational method of identifying which multistate companies are liable for B&O taxes in Washington. (See the schmudget post “What is ‘Economic Nexus’ and Why Do I care?” for more information.) Other items in this category include -- increasing the B&O tax rate on business services; eliminating a deduction banks and mortgage companies claim for interest earned on first home mortgages; repealing the Dot Foods exemption; and other actions. A recent analysis from the Economic Opportunity Institute (EOI) provides an overview of wasteful tax preferences in Washington.

The Working Families Tax Rebate

While new revenues are needed to preserve essential services, lawmakers should also reduce costs for lower-and moderate-income families. Pairing any package of revenue enhancements with full funding for the Working Families Tax Rebate (WFTR) – a tax rebate program based on the federal EITC – would accomplish both objectives. At a cost of about $80 million per year, funding the WFTR at 10 percent of the federal EITC would significantly reduce costs for low-income working Washingtonians. On average, the poorest fifth of families with children in Washington would receive rebates of more than $200 each year. (See: How Much Would You Get? A Working Families Tax Rebate Calculator)

Below are links to additional Budget & Policy Center resources and information about the WFTR.

The Working Families Tax Rebate
The Working Families Tax Rebate by Legislative District
Increasing the Sales Tax and Funding the Working Families Tax Rebate

New Sales Tax Measure Would Prevent Damaging Cuts

Andy Nicholas — 2010-02-12T19:29:31Z

Essential public services like health care, education, and child care assistance face severe cuts or complete elimination as a result of the national recession. In dealing with the economy's impact on the state budget, policymakers should take a balanced approach that includes new revenues. A new bill introduced yesterday could be a component of such an approach.

House Bill 3183 would generate over $1 billion in new resources by temporarily increasing the state sales tax by one percentage-point, and the motor vehicle fuel excise tax by 1.5 percentage-points.* These actions would entail minimal compliance costs for the state and for businesses, and could be implemented quickly and efficiently. Both increases would phase out as the economy improves. The advantages of using the sales tax to preserve services are discussed more fully in the BPC analysis "Increasing and Modernizing the Sales Tax."

While new revenues are needed to preserve essential services, lawmakers should also consider policies that would reduce costs for lower-and moderate-income families. Pairing the revenue enhancements included in HB 3183 with full funding for the Working Families Tax Rebate (WFTR) -- a tax rebate program based on the federal EITC -- would accomplish both of these objectives.

The graph below shows the impact of a one-percentage point increase in the sales tax (similar to HB 3183) coupled full funding for the WFTR.

As the graph shows, the WFTR would substantially reduce costs for poorest fifth of families with kids in Washington. The next fifth of families would benefit as well. Click here for a calculator to see how much the WFTR would be worth to families.

* An official revenue estimate is not yet available.

A Tax Cut for Working Families

Jeff Chapman — 2010-03-11T19:10:36Z

January, 2008 - Thousands of families in Washington face daily challenges to making ends meet— low-wage incomes are insufficient to cover the high costs of healthcare, childcare, and job-related expenses. To make matters worse, these families pay higher percentages of their incomes in state and local taxes than wealthier residents.
A Working Families Credit will cut taxes for more than 350,000 Washington residents by adding 10 percent to their federal Earned Income Tax Credit (EITC) refund.

A Fair Sales Tax for Health and Economic Security

Stacey Schultz — 2009-12-17T18:32:53Z

The House Health and Human Services Appropriations Subcommittee passed a referendum to temporarily raise the state retail sales tax from 6.5 to 6.8 cents to generate revenue for essential health care investments. The proposal includes implementing the Working Families Tax Rebate to offset the costs of the tax increase for lower income families. This policy protects the health and well-being of lower income adults and children in Washington during the economic recession and recognizes the need for progressive tax reform in our state.

To read a statement by the Budget & Policy Center on this policy proposal, click here.

For more information on the Working Families Tax Rebate, click here.

How Much Would You Get? A Working Families Tax Rebate Calculator

Jeff Chapman — 2010-02-03T18:53:30Z

Washingtonians who are eligible for the federal Earned Income Tax Credit (EITC) and have lived in the state for six months would be eligible for the Working Families Tax Rebate.

The calculator below lets you see how much the credit would be worth based on filing status, number of children, and the amount of earned income. (This assumes the credit will be equal to five percent of the EITC and is for tax year 2009.)

For example, a married couple with two kids and $20,000 in wages would receive $251 dollars. A single parent with one child would receive $152. The minimum credit for those who are eligible is $25.

This post has been updated.

* The basic requirements for EITC eligibility are 1) a valid Social Security number, 2) residence in the United States for more than half the year, 3) less than $3,100 in investment income, 4) some earned income, 5) a U.S. citizen or resident alien, 6) between ages 25 and 65 or have a qualified dependent, 7) a filing status other than married filing separately.

A Tax Cut for Lower Income Working Families

Jeff Chapman — 2009-12-17T18:30:27Z

A sales tax increase from 6.5 cents per dollar to 6.8 cents has been proposed as a way to avoid making deep cuts in important health care investments. The proposal has linked the sales tax increase with a Working Families Tax Rebate, which will refund a portion of the sales tax for lower and moderate income families.

A 0.3 cent increase in the retail sales tax would cost lower income families with kids (those earning $28,000 or less) about $38 annually (see graph below). Upper income families would pay about $163 per year.

While upper income families would pay more in absolute terms, an increase in the sales tax would cost lower income families more as a share of their income. The Working Families Tax Rebate is an important tool for revenue policy because it can offset the impacts of a tax increase for families who are struggling to make ends meet during the recession.

The graph above also shows the net impact of a sales tax increase combined with a Working Families Tax Rebate. Families with kids whose income is $28,000 or less would actually see a net decrease in sales tax. The rebate would also significantly lower the cost of the sales tax increase for the next bracket of earners (those earning between $28,000 and $52,000) so that their total tax increase would be about $29 annually.

Note: Because of the structure of the federal EITC, the Working Families Tax Rebate primarily benefits families with children. Adults without children can qualify for the EITC, but they receive a much smaller credit. The source for these data is the Institute for Taxation and Economic Policy Microsimulation Model.

Working Families Tax Rebate by Legislative District

Jeff Chapman — 2009-12-17T19:58:42Z

The proposal to raise the state retail sales tax by 0.3 cents includes the Working Families Rebate. This rebate will refund a portion of the sales tax to lower income working families. The total amount is estimated to equal $68.5 million. Click here (PDF) to see how your legislative district would fare.

The ten districts that would benefit the most would be:

15th (Klickitat and Skamania counties, south Yakima County, and an eastern portion of Clark County) - $2.9 million
14th (Yakima, Union Gap, Selah, Gleed, Naches, Tieton, Ahtanum, Cowiche, Tampico, and all of western Yakima County)- $2.4 million
29th (South Tacoma, Parkland, and portions of Lakewood and University Place) - $2.3 million
16th (Columbia and Walla Walla counties and of parts of Benton and Franklin Counties) - $2.2 million
3rd (Spokane, extending to the North Side and South Hill) - $2.2 million
13th (Kittitas County and parts of Grant and Yakima counties) - $2 million
7th (Ferry, Lincoln, Pend Oreille, and Stevens counties, and parts of Okanogan and Spokane counties) - $1.9 million
12th (Chelan and Douglas County and parts of Grant and Okanogan counties) - $1.9 million
49th (Clark County, including Vancouver west of Interstate 205, and Hazel Dell) - $1.8 million
28th (DuPont, Fircrest, University Place, Lakewood, Steilacoom, Tillicum, and West Tacoma; Anderson, Ketron and McNeil Islands) - $1.8 million

UPDATE: Revenue for Health Care and Tax Rebate Proposed

Jeff Chapman — 2009-12-17T20:10:33Z

A new proposal to temporarily raise the state retail sales tax by 0.3 cents has passed the House Health and Human Services Appropriations Subcommittee. It dedicates revenue from the tax to essential health care investments and funds the Working Families Tax Rebate.

The Subcommittee amended the proposed appropriations by decreasing the amount spent on the Working Families Tax Rebate and shifting that funding to the Basic Health Plan, community mental health services, and the addition of vision and hearing services.

The $484 million appropriated in the bill is divided as follows:

$105 $69 million for the Working Families Tax Rebate, which refunds a portion of the state sales tax to lower income working households.
$167 $187 million for the Basic Health Plan, a program that provides affordable health insurance to lower income Washingtonians.
$77 million for long-term care and nursing homes, including adult day health programs.
$75 million to provide funding for hospitals.
$24 $28 million for community mental health services.
$13 million for children's health.
$19 million for Healthy Options, a managed-care health program.
$10 million for core public health services.
NEW - $5 million for vision and hearing services

*Appropriations are only made for the 2009-11 biennium, but the temporary sales tax increase is scheduled through December 2012.

Working Families Rebate would Benefit Families with Children

Jeff Chapman — 2009-12-17T18:54:34Z

About 97 percent of the total Working Families Tax Rebate that was proposed today would flow to working families with children.

*The percentages don't sum to 100 percent because of rounding.