Working Families Tax Rebate

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.

Sales Tax Increase Would Be Offset on Federal Return

Jeff Chapman — 2010-01-12T18:55:03Z

There’s growing discussion about a state sales tax increase to pay for essential health care investments. Being April 15th, I wanted to point out that for some Washingtonians, an increase in the state sales tax will be partially offset when they file their federal tax return if Congress makes the sales tax deduction permanent. The size of that deduction will rise if voters approve an increase in the state sales tax rate.

Of course, that only helps people who itemize their deductions (mostly homeowners and higher income households). This emphasizes the importance of including funding for the Working Families Tax Rebate (WFTR) in any tax increase proposal. The WFTR will refund a portion of the state sales tax to lower income working families (more info here).

Speaking of the WFTR, it's also timely to mention that one of the advantages of the idea is that it piggybacks on the federal tax return process. That means that the IRS will be doing a significant share of the administration. It also means that the application process will be simple and straightforward. More on that here.

Working Families Tax Rebate Administration Would be Straightforward and Efficient

Jeff Chapman — 2009-12-17T19:49:18Z

The Working Families Tax Rebate (WFTR) was signed into law last year. The state budget included modest funding to allow the Department of Revenue (DOR) to begin developing the necessary infrastructure. 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.

The Department of Revenue still has a significant role to play, of course. Last summer, 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.

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 (such as this video featuring the Governor) 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.

Working Families Tax Rebate: Benefits by Legislative District

Stacey Schultz — 2009-12-17T18:28:44Z

Last Friday the Budget & Policy Center released a paper on the benefits of the Working Families Tax Rebate for economic and fiscal recovery in Washington State.

The Working Families Tax Rebate will refund a portion of the state retail sales tax to the 350,000 Washington households that qualify for the federal Earned Income Tax Credit. Statewide, 12 percent of householdswere eligible for the EITC in 2006 and would have therefore been eligible for the WFTR. 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.

Click on map for larger version.