Schmudget Blog


Working Families Tax Rebate Remains Smart Policy to Fix Our Tax Code, Bolster Washingtonians with Low Wages

Posted by Julie Watts at Mar 02, 2017 08:05 PM |
By Asha Bellduboset, Narver fellow, and Jennifer Tran, senior policy analyst
 
In Washington state, the Working Families Tax Rebate (WFTR) is a powerful tool to help rebalance the state’s tax code and strengthen the economic security of working families. WFTR is the state version of the Earned Income Tax Credit (EITC), a federal tax rebate that lifts more families above the poverty line than almost any other government program. Through the EITC, qualifying low-wage workers can get an annual boost to their income in the form of a tax credit. Nearly all recipients are families with at least one child living at home. The WFTR was enacted by state policymakers in 2008 to build on the EITC and help hardworking Washingtonians meet basic needs. Unfortunately, the program has never been funded. It’s time for that to change.

Funding the WFTR is an important step lawmakers can take to clean up our inequitable tax code while reducing taxes for households with middle and low incomes. Under our current tax code, people with the lowest incomes pay seven times more in state and local taxes as a percentage of their income than the wealthiest 1 percent. The WFTR would help alleviate the disproportionate tax responsibility placed on people with low incomes by providing an extra boost to households already receiving the EITC.

Households that receive an EITC would get an additional 10 percent rebate for the year through the WFTR. For example, a family with two qualifying children receiving the maximum annual EITC credit amount of $5,616 could also qualify for an extra $562 through the WFTR. This extra income could cover the cost of feeding a family of three for one month or pay for a month of care for a school-age child.

Looking at the most current data on EITC filers, we estimate that if the WFTR were funded [1]:

  • Nearly 439,000 Washingtonians across every county who received an Earned Income Tax Credit would also receive a Working Families Tax Rebate, with a slightly higher share of benefits going to rural counties;
  • The WFTR would put $95 million back into the state economy; and
  • Qualifying households would on average receive approximately $2,400 in EITC and WFTR combined.

The EITC has been an extremely successful federal poverty-reduction tool, not only by immediately reducing taxes for working families, but also by supporting their work efforts through rebates that support access to transportation and child care. Our state should capitalize on the many established benefits of the federal program by fully funding the WFTR.

The map below further emphasizes why funding the WFTR is a smart policy choice. It would benefit households in all 39 counties in Washington state. And in particular, working families in rural counties in central and eastern Washington would see an economic boost.

Click on graphic to see enlarged version.

WFTR Map

Click here for a printable listing of total EITC returns and estimated WFTR rebate amounts for Washingtonians by county and legislative district.

And for details about the Budget & Policy Center’s full revenue reform plan, which includes the WFTR, visit our Accountable Washington webpage. The Accountable Washington plan would clean up the tax code, bolster the economic security of people with middle and low incomes, and invest in important statewide priorities

1. Budget and Policy Center’s Analysis of Brookings EITC 2014 Tax Year data, https://www.brookings.edu/interactives/earned-income-tax-credit-eitc-interactive-and-resources/

Our New Revenue Reform Plan Would Hold Lawmakers Accountable to Communities

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst
 
Great schools, access to health care, safe communities, and other priorities are key to a strong economy and quality of life in our state. By investing in these priorities, lawmakers secure a brighter future for our state and its people.

But during the current legislative session, lawmakers are still struggling to find common ground on how to invest in schools and other key priorities. It’s essential that legislators take a bold, equitable path to fund our state’s most important investments and to bring greater balance to our tax code. The Budget & Policy Center has developed a plan that would do just that. This plan, called Accountable Washington, includes a package of reforms that would infuse $2 billion annually into our communities in the coming years, while significantly reducing taxes for Washington households with middle and low incomes. Additional details of the plan are available in this fact sheet.

As the chart below shows, taxes would decline by an average of 5.1 percent among the households with annual incomes that fall in the bottom fifth of Washingtonians. Households in the middle of the income scale would see their taxes decrease by 0.6 percent. By contrast, the richest 1 percent would see their taxes rise by 2.1 percent of annual income – a small price to pay for heightened investments in our communities. 

Click on the graphic below to see an enlarged version.

Accountable_WA_Distribution

Given the urgent need to fund state Supreme Court-mandated improvements to schools across the state, all of Washington’s children would be an important beneficiary of Accountable Washington. Further, this plan would ensure that lawmakers can fully funds schools while also keeping up investments in other programs that serve Washingtonians – such as responsive emergency services, clean water, food for kids who are hungry, and job supports for working parents. 

While looking to enact solutions to ensure we have adequate state investments, lawmakers should also be mindful not to raise new revenue on the backs of low- and middle-income households. These households already pay up to seven times more in state and local taxes as a share of their incomes than people at the top of the income scale. 

Accountable Washington would begin to clean up and rebalance our inequitable tax code in a way that raises billions of dollars in much-needed new resources. Here’s what it would do:

  • Enact smart, equitable reforms to the property tax, including eliminating an indiscriminate restriction on property tax revenue and offering in its place a new, targeted property tax rebate, which we call the safeguard rebate, for families earning $75,000 or less. Property taxes are the most significant source of funding for schools, and both state and local property taxes are at the center of the school funding debate. Under Accountable Washington, lawmakers can make the property tax code more sustainable and more equitable by raising the state property tax rate by $1.54 per $1,000 of assessed value and enacting a safeguard rebate to offset these increases for households with low and middle incomes. 
  • Rebalance the tax code by enacting an excise tax on capital gains at a rate of 9.9 percent on profits from the sale of stocks, bonds, and other financial assets of more than $25,000 (or $50,000 for couples). Washington is giving away a $2.8 billion capital gains tax break to the wealthiest Washingtonians. While 41 other states have this common-sense tax, Washington gives the wealthy a break on huge profits they receive simply from moving their wealth around. Almost 90 percent of this capital gains tax would be collected from the richest 1 percent of Washingtonians. Gains from the sale of a primary home, retirement accounts, college savings plans, and other common investments would be excluded from the tax. 
  • Lift up working families by funding the Working Families Tax Rebate (WFTR). Based on the federal Earned Income Tax Credit (EITC), this rebate is a smart fiscal policy to help struggling families make ends meet. The EITC is one of the most powerful federal anti-poverty tools on the books. Including the WFTR in the Accountable Washington proposal keeps taxes from taking too big a bite out of family budgets for the lowest-income Washingtonians. 
  • Clean out 21 wasteful tax breaks that divert money out of classrooms and into the hands of special interests. To be clear, not all of Washington’s 700 tax breaks are bad policy, but many are outdated and no longer serve their original purpose. And others are simply giveaways to the powerful interests that finagled them into the tax code in the first place. Everybody benefits from excellent schools, clean air and water, safe roads, and accessible health care, so everybody should pitch in and pay their share. 

Our lawmakers have an historic opportunity to make some long-awaited repairs to our broken tax code, not only to provide a world-class education for Washington’s 1.6 million kids, but also to serve their parents, their teachers, their neighbors, and their entire communities. We believe they can do that through Accountable Washington. 

Check out this fact sheet on the proposal for more details.

Policymakers Have Opportunities to Advance Family Well-Being this Session

Posted by Julie Watts at Feb 15, 2017 12:10 PM |

Intergenerational approaches to addressing poverty are grounded in the principle that children thrive when their parents have the ability to meet their basic needs and secure their economic future. This legislative session, policymakers have several opportunities to pass legislation that would help ensure that Washington families across generations can reach their full potential and thrive.

As we have previously writtenHouse Bill 1484 and Senate Bill 5440 would lay the foundation and establish a framework to reduce the number of people living below 200 percent of the federal poverty line ($32,040 a year for a family of two) by half by 2025. 

Policymakers can also take steps this session to strengthen public benefit programs to have an immediate impact on child and family well-being. For example, they should ensure that state agencies and community organizations have the data and information they need to create effective poverty-reduction strategies. Current data sources don’t tell us enough about who is going hungry and missing meals due to a lack of financial resources. That is why policymakers and anti-hunger advocates have introduced Senate Bill 5485 and House Bill 2014 to allow the state to get more-detailed hunger data by region, race, and ethnicity to better target resources throughout the state. 

To see a fact sheet on why our state needs better data on hunger, click on the graphic below. 

Food insecurity graphic


Further, policymakers should also support these five intergenerational poverty-reduction priorities this session to build a better foundation for the future of our state:

  • Early Childhood Education: In order to thrive, all young children must have access to high-quality early learning. Policymakers must make sure more kids can enroll in the Early Childhood Education Assistance Program (ECEAP) and make sure the ECEAP child care centers have the resources to provide preschool education, and health and nutrition services. They should also improve both quality and access to affordable child care through Working Connections Child Care by eliminating potential waitlists, increasing the wages of child care workers, and ensuring providers have the resources they need to provide great care.
  • Post-Secondary and Employment Pathways: Education is a key pathway out of poverty. However, parents who participate in WorkFirst (a temporary assistance program to help families in poverty get on their feet) are not allowed to pursue more than 12 months of post-secondary education and training. A recent state study found that WorkFirst parents who manage against the odds to complete at least 54 credits (which takes at least 24 months) earned $6,252 more annually two years later and spent fewer total months on public assistance than parents who don’t go to community college. Senate Bill 5347 and House Bill1566 would allow WorkFirst parents to pursue 24 months of post-secondary vocational education and training.
  • Economic Assets:  We all need to have some savings to weather tough economic times, like the loss of a job or an illness. Unfortunately, some public assistance programs force people to spend down their savings or sell their car in order to qualify. As a result, people who are financially struggling need to dig themselves into a deeper economic hole before getting help. Two bills this session, Senate Bill 5609 and House Bill 1831 would raise or eliminate entirely asset caps in public assistance programs. Both bills would not only help people be more financially resilient, but would also make the programs more beneficial and cost-effective.

To see a fact sheet on the benefits of eliminating asset caps, click on the graphic below. 

Asset building image
  • Health & Well-Being: Research shows that children who grow up in economic hardship are at greater risk of experiencing toxic stress. In fact, as many as one in five low-income children and youth between ages 6 and 17 have some form of behavioral or mental health disorder. Rates are even higher for children who live in poverty and for those who become involved in the child welfare and juvenile justice systems. Intergenerational approaches to poverty place an emphases on reducing toxic stress through improved mental health services. House Bill 1713 and Senate Bill 5763 would require the state to better coordinate mental health resources and treatment for Medicaid-eligible children in Washington, require depression screenings for youth, and maintain a network of mental health providers.
  • Social Capital: Research has shown that there is an inter-relationship between social capital (relationships that help people earn more money and build influence in their community) and post-secondary education. Having social capital helps you get a better education and vice versa. Social capital and post-secondary education help people who’ve been incarcerated have a better transition home upon release, and they also them better contribute to their communities. Senate Bill 5069 and House Bill 1129 would allow people to pursue an associate’s degree while incarcerated, ensuring they have a chance at a better life when they are released and able to strengthen the well-being of their families and communities.


Policymakers on both sides of the political aisle have demonstrated their interest in and support for taking intergenerational approach to reducing poverty. The bipartisan support of many of these bills is a great sign that lawmakers want to support common goals to strengthen the well-being of all Washingtonians. 

Intergenerational Poverty Bill Would Help Lift Children and their Parents Out of Poverty

Posted by Melinda Young-Flynn at Feb 01, 2017 10:50 AM |
By Julie Watts, deputy director

Children can reach their full potential when their whole family has economic security. That is the fundamental principle underlying intergenerational approaches to addressing child poverty.


This session, state policymakers have an opportunity to lift significant numbers of Washingtonians out of poverty by passing a bill that focuses on improving the well-being of children and their families. House Bill 1482/Senate Bill 5440 would create an intergenerational, results-focused, evidence-based effort to improve the well-being of future generations.

Click on graphic to see enlarged version.

2gen_gears

Far too many children in Washington state are growing up in poverty and households that are financially struggling. They don’t have enough to eat, a consistent place to sleep, or access to a doctor when they are sick or dentist when they have a cavity. Research shows that children who grow up with this kind of economic hardship are at greater risk of experiencing levels of toxic stress so severe it can affect them throughout their lifetime. Such stress impacts their emotional development, their future academic achievement, and the chances they will raise their own children in economic hardship as well.

Intergenerational  approaches (also called two-generation approaches) to address poverty focus on supporting parents and children together – rather than supporting them in silos – to help them move out of poverty permanently. They coordinate support for families across five key areas: high-quality early childhood education; higher education and career pathways; asset building; health and well-being; and social capital.

HB 1482 and SB 5440 would:

  • Expand the scope of a state legislative-executive task force on WorkFirst (Washington’s temporary cash assistance program that helps families struggling to make ends meet get back on their feet) to include poverty reduction and to focus on the underlying causes of intergenerational poverty.
  • Establish a key goal of the task force to reduce the number of people living below 200 percent of the federal poverty line by 50 percent by 2025 in a way that eliminates disparities by race, ethnicity, sex, gender, zip code, immigration status, age, household type, disability status, and more.
  • Require the Department of Social and Health Services (DSHS) to develop a five- and 10-year plan to reduce poverty.
  • Require DSHS to gather and track relevant national, state, and local data related to poverty and track progress toward poverty reduction goals.

Children are more likely to thrive when their parents are thriving. These bills can help lay the foundation for dramatic poverty reduction in our state so all of Washington’s kids can reach their full potential.

Senate Republicans' Plan Doesn't Amply Fund Schools, Puts Other Programs at Risk

The Senate Republicans' new plan to fund K-12 public schools continues to work within a framework that doesn’t raise additional revenue – a strategy that has proven ineffective at serving Washington's kids and that could force cuts to other important investments. To pay for the basics, including keeping excellent teachers and staff in our public schools, the legislature must inject more resources into schools than they have in recent years. Any plan to improve our schools must include additional new revenue, as well as a strong focus on equity, sustainability, and adequacy.

The Senate’s plan, called the Education Equality Act, features as its major funding source a new Local Effort Levy – basically, an increase to the statewide property tax of $1.80 per $1,000 of assessed value. As details about the plan emerge, however, it appears that the plan does not actually raise additional dollars for schools. That’s because the proposed statewide property tax increase is coupled with cuts to local property tax levies that currently fund a significant portion of basic education costs. As we’ve said in the past, levy swaps like this are schemes that change the source of the money flowing to schools but don’t actually make new investments in Washington’s kids.

As it is structured, the plan could deepen the shortfall in school funding because the plan does not pay for itself. It leaves a $1.4 billion hole in the 2019-2021 budget, for which its authors have yet to identify a source of funding. Promising to pay for education without identifying a funding source is a prescription for damaging cuts throughout the rest of the budget. And while the plan would dedicate future revenue growth to funding basic education, it would use any revenue growth in addition to the dedicated funds to decrease the new Local Effort Levy to a rate of $1.25. In short, the proposal is not only short on revenue now, but it is also designed to restrict revenue growth for schools and other public investments in the future.  

There is certainly promise in raising additional school revenue through property tax reforms, as we have proposed. The Senate's plan would effectively nearly double the current state property tax rate. And it exempts the Local Effort Levy from the damaging 1 percent property tax levy growth limit, which is a positive step toward making the tax code more sustainable. But this plan should go further and get rid of the 1 percent levy growth limit altogether to allow property tax revenue to better keep up with the needs of our schools.

In addition, any reforms to the property tax should also include steps to fix our inequitable, upside-down tax code – in which Washingtonians with the lowest incomes pay seven times what the richest 1 percent pay in taxes as a share of income. The Senate's plan aims to more evenly distribute the tax code so that homeowners in every school district pay the same property tax rate, regardless of property values. But that doesn’t do enough to protect the thousands of lower- and middle-income homeowners and renters who would see higher property tax bills under the Senate proposal. The proposal should include a property tax safeguard rebate to ensure that property tax increases do not fall disproportionately on the shoulders of families who can’t afford it, no matter what part of the state they call home.

To learn more about the Senate Republicans' school funding plan, join our fiscal policy team for a Budget Beat webinar this Friday, February 3, at noon. And stay tuned for further analysis when more details about the fiscal impact of the plan become available. 

 

Creating a Safeguard Rebate Is Key to Equitable Property Tax Reform

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst

This is the fourth in a series of schmudget blog posts about property taxes in Washington state and the role they play in funding basic K-12 education.


Any reform to the Washington state property tax code to help pay for schools must also take steps to make the tax code more equitable. In conjunction with other reforms that the Budget & Policy Center is proposing to the property tax, legislators should consider creating a new property tax rebate – called a safeguard rebate – to reduce property tax payments for homeowners and renters with middle and lower incomes. This new rebate would ensure that our proposed changes to the property tax code do not disproportionately impact these residents.

For eligible households, the safeguard rebate would reduce property tax payments that exceed a certain portion of a household’s annual income. The rebate would be available to homeowners and renters in Washington state with annual household incomes below $75,000. More specifically:

  • Households earning less than $25,000 per year would be refunded all of the property taxes they pay, up to a maximum of $1,500.
  • Households earning $25,000 to $46,999 would be refunded their property taxes in excess of 1 percent of household income, up to a maximum of $1,250.
  • Households earning $47,000 to $74,999 would be refunded their property taxes paid in excess of 2 percent of household income, up to a maximum of $1,000.

The Budget & Policy Center’s property tax reform proposals would increase the state property tax rate and eliminate the law that artificially restricts property tax growth. Adding in this safeguard rebate is an important step to ensure that these reforms don’t most heavily impact the people who can least afford a higher tax. 

In fact, creating this safeguard rebate would actually result in reduced property taxes for lower- and middle-income households. The chart below shows how safeguard rebates would offset the effect of increasing the state property tax for households bringing in less than $75,000 per year. The households with the lowest incomes would see their overall state and local tax bills shrink by 4.6 percent of their annual incomes.

Click on the graphic below to see an enlarged version.

Safeguard_rebate_by_income_1_26

Importantly, the rebate would be available to renters as well as homeowners. Even though renters do not directly pay property taxes, economists note that most landlords pass some of their property tax bills on to renters, and renters pay property taxes through higher rents. Under this proposal, renters would be able to assume that 15 percent of their rent is property tax, and they would be eligible for the safeguard rebate under the same parameters as homeowners. 

Across the nation, 18 states have enacted similar property tax credits or rebates, and 16 of them include renters in the program. This is an approach that has been tested – and works – in other states.

Protecting households with middle and low incomes paves the way for lawmakers to raise property tax revenue in an equitable way – from Washingtonians at the top of the income scale who currently pay seven times less in state taxes as a percentage of their incomes than those with the lowest incomes. 

By promoting equity and raising essential revenue, safeguard rebates are a smart path to keeping property taxes affordable for those who already struggle to make ends meet. They would help fix a tax code that for far too long has raised revenue on the backs of those who can least afford it while giving the richest 1 percent a break.   

 

It’s Time to Strengthen Our Property Tax Code to Invest in Schools

By Andy Nicholas, associate director of fiscal policy, and Kelli Smith, policy analyst

This is the third in a series of schmudget blog posts about property taxes in Washington state and the role they play in funding basic K-12 education.


To invest in the high-quality K-12 education Washington’s kids deserve, lawmakers should clean up the state’s primary source of school funding – the property tax code. There's a way to clean up the tax code while also creating a more sustainable, equitable source of funding for our kids’ schools. Here’s how:

  • Eliminate a damaging law that restricts growth in resources that can be generated by state and local property taxes each year. 
  • Raise the state property tax to $3.60 per $1,000 of assessed value from the projected 2017 rate of $2.06 per $1,000 of assessed value, which is low by historic standards
  • Enact a property tax safeguard rebate to ensure these changes don’t disproportionately impact renters and homeowners who can’t afford a tax increase.

Washington’s state and local property taxes have historically been a reliable source of funding for schools, public safety, and other important priorities that serve all Washingtonians. But the property tax’s ability to support these investments has steadily eroded since Tim Eyman’s Initiative 747 – which built on previous limitations enacted in the late 1990s –  was approved in 2001. 

I-747 limited the annual growth in property tax collections to a maximum of 1 percent per year [1] for the state’s portion of the property tax revenue and for all local property tax levies that don’t have to be regularly re-approved by voters. Because the state’s portion of the property tax is dedicated to K-12 public schools under the state constitution, this restriction on property tax revenue means it can’t keep pace with the annual growth in essential education costs, like heating classrooms and providing manageable class sizes. 

Washington’s kids have been paying the price for this disastrous law ever since it was first enacted. As the chart below shows, in 2016 alone, the 1 percent levy growth limit left $1.5 billion on the table that could – and should – have been invested in our school kids. Those resources would have gone a long way toward closing the gap on the Supreme Court mandate for school funding per the McCleary decision. 

Click on the graphic to see an enlarged version of the chart.

1%_levy_limit

To reverse this trend, lawmakers should repeal Eyman’s 1 percent levy growth limit and raise the state property tax rate to $3.60 per $1,000 of assessed value. Doing so would inject at least $1.5 billion per year back into our kids’ classrooms.  

The across-the-board 1 percent levy growth limit is the wrong way to address our upside-down tax code – in which Washingtonians with the lowest incomes are paying the way for the wealthiest. A safeguard rebate is a better way to ensure that our property tax system is both sustainable and equitable. It allows policymakers to raise additional resources for schools while reducing taxes for middle- and lower-income homeowners and renters. (Read more about our safeguard rebate proposal on this schmudget blog post.)  

1. The 1 percent levy growth limit caps growth in property tax revenue from regular levies by the lesser of 1 percent or the rate of inflation per year plus the value of new construction.

 
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HIGHLIGHTS

Budget Beat!

We host regular Budget Beat webinars throughout legislative session to bring you updates and breaking news from Olympia and timely policy analysis. Join us on Friday, June 23, for a Budget Beat about federal budget proposals, featuring Louisa Warren of the Center on Budget and Policy Priorities. And visit our YouTube channel to watch our previous Budget Beats. 

Testimonies in Olympia

To advance our legislative priorities, the Budget & Policy Center team is in the state capitol throughout session testifying on a wide range of bills. Watch our recent testimonies on TVW:
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View Our School Funding Plenary 

Roxana_BMC_plenary_2016View the Budget Matters 2016 conference plenary, "What's at Stake in the 2017-2019 Budget: Funding McCleary and Beyond." Moderated by Ann Dornfeld of KUOW, the plenary features Nathan Gibbs-Bowling, the 2016 Washington State Teacher of the Year; Lew Moore of the Washington Research Council; Roxana Norouzi of OneAmerica; and Sen. Christine Rolfes. The plenary starts after an intro by Executive Director Misha Werschkul and an intro video by Gov. Inslee.