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S.C. Statehouse
Report
Sunday, July 9, 2006
VIEW: http://www.statehousereport.com/columns/06.0709.credit.htm
Earned
income tax credit can lift some out of poverty
By
Andy Brack
Publisher
SC Statehouse Report
 JULY
9, 2006 -- From the state Chamber of Commerce to the Palmetto
Institute, more folks are talking about raising incomes in
South Carolina to boost competitiveness and make the state
stronger.
According to preliminary 2005 figures from the U.S. Department
of Commerce, per capita income in the state is $28,352 - 82
percent of the national average of $34,586. South Carolina
ranks 43rd nationally in per capita income.
While business and non-profit leaders are focusing on the
problem, state lawmakers don't seem to have it on their radar
screen. Yes, they've taken steps to try to lure more jobs
here, but most of that effort seems to focus on bringing in
big industries instead of pumping up small businesses. Unfortunately,
any gains they see from new jobs aren't keeping up with lost
jobs, particularly manufacturing jobs. In turn, that keeps
the state's unemployment rate among the highest in the nation.
Perhaps it is time for state government to do more. One idea
to consider is a state earned income tax credit. Some 19 states
across the country have successfully implemented such a credit
to help lift working low-income residents out of poverty.
No Southern state has a fully refundable credit, although
Virginia will implement a non-refundable version in the 2006
tax year.
An earned income tax credit is a work incentive that goes
to working families. State EITCs typically are based on the
federal credit, which has enjoyed bipartisan support and expansion
over the last 30 years.
The federal EITC reduces or eliminates income taxes for poor
and near-poor working families. Additionally, it also can
provide a refund for any remaining amount of credit. It helps
offset other federal payroll taxes, such as Social Security,
and can help bring working family incomes above the poverty
line.
Here's how the federal credit worked in 2005. If a family
with two or more children had an income of less than $35,263
(or $37,263 for married couples filing jointly), the working
family could receive an earned income tax credit of up to
$4,400. As incomes approach the top level of income in the
EITC program, the credit phases out. The maximum benefit tends
to be for families with incomes around $15,000 to $18,000.
Families that take part in the federal EITC program are able
to get back some of the money withheld from paychecks. If
their incomes are low enough, they may receive an additional
refund up to the total of $4,400, based on total income.
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Across the South, some 6.4 million working poor families
took advantage of the earned income tax credit in 2003. In
South Carolina, almost 415,000 of the 1.8 million federal
tax returns filed included EITC claims worth $980 million.
In other words, the federal government pumped almost a billion
back into South Carolina to augment wages of working poor
families.
But while the proven federal government strategy recognizes
that an EITC is a way to boost incomes of the working poor,
South Carolina hasn't responded in kind.
So that leaves working poor families in a weird place: Those
with earnings so low that they get a credit refund from the
federal government still have to pay state income taxes. Arguably
these taxes are lower, but they put a strain on already poor
working families that are trying to escape poverty.
States with EITCs generally have implemented refundable state
credits based on a percentage of the federal credit, which
makes it easy to administer. If, for example, a family qualified
for a federal credit of $4,400, a state credit at a 10 percent
level would relieve a state income tax burden of up to $440.
Yes, a refundable earned income tax credit for South Carolina
would "cost" money. If South Carolina enacted a
credit based on 10 percent of the federal EITC, it would have
to come up with a $96 million pool to make refunds to the
working poor.
But many argue that investing in working families through
the credit would reduce the burden of regressive sales and
property taxes. It also would reward work in a progressive
way without creating a welfare program. And it certainly seems
a better way to help thousands of working people than providing
millions in tax incentives for big businesses that bring relatively
few jobs to the state.
Andy Brack's new book of commentary, Bugging
the Palmettos, is available for $15.00. Click
here for more.
Recent commentary
7/7: Boomer-in-chief
Another great cartoon from Bill McLemore:
 The
best way to get South Carolina news is to augment your morning
paper and TV show with SC Clips, a daily executive
news summary compiled from more than 30 state newspaper and
TV sources. It's delivered every business day and is packed
with news of statewide impact, politics, business and more.
Subscriptions are affordable at $30 per month -- and less
for business subscribers. More: SC
Clips.
7/5:
Property tax reductions needed
To the editor:
Elimination of all property taxes may not be frugal, but
the reduction or limiting of said taxes is becoming a necessity.
To have my taxes increased every 5 years is making retirement
here an impossibility. So South Carolina wants me when I am
young and working, but when I retire, I better get the heck
out of here and make room for more income producing folks.
The increase in the value of my home is strictly on paper.
It does not happen until I sell the house. Why should I pay
higher taxes because developers around me are tearing down
forests to build larger, fancier housing? I am still living
in the same house.
We need a cap on property tax like the initiative in California
in 1979 which held property taxes at the original purchase
price unless major improvements were made or the house was
sold. Investors buy and sell frequently allowing the appraised
value and therefore taxes to rise.Older folks buy a house
for a place to live. It is not an investment, it is a home.
Why should it be treated as an investment?
-- Diane Thompson, York, S.C.
6/28: Fix the tax system
To the editor:
Honestly, I think many politicians and a high percentage
of the public who, purportedly, are looking out for their
state [as well as themselves] just don't "get it"
when it comes to taxes and the economy. I believe there are
several tax code principles that, when fully enacted, will
turn the SC economy into a dynamo and, coincidentally, will
raise the hopes and standard of living for all South Carolinians:
1) Phase out the general sales tax. It is regressive. It is
a brake on the economy.
2) Restaurant taxes, lodging taxes, gasoline taxes and sin
taxes [tobacco, alcohol] are OK but they shouldn't be out
of line with neighboring states - for obvious reasons. These
taxes also tend to be supported at a higher percentage by
out-of-state residents and it's never bad to have SC taxes
paid by others.
3) To make up for lost tax revenue from the phase out of the
sales taxes, add/increase the 'business profits taxes'. IF
SC didn't have a sales tax, can you imagine the tremendous
uptick in sales volumes by stores in SC? And those stores'
now higher sales and profits [and higher profits taxes] will
be heavily borne by out-of-staters. The boom in the retail
sales segment of the SC economy will also be a big source
of new jobs. SC could put places like the Commerce, GA outlet
mall out of business. {The textile & farm based economy
for SC is dying out and a major part of the future job growth
for unskilled and less-educated workers will be retail sales.}
4) Keep a tight rein on property taxes, BUT don't let them
get too low. Extremely low property taxes are, in effect,
subsidies for the well-off. By having a minimum property tax
level, the shacks and run-down properties will be less attractive
to maintain as is and more attractive to fix or be re-developed.
There should also be a minimum property tax on ALL vehicles,
registered or unregistered, for the same reason.
5) Income and business taxes should be graduated but not punitive.
NC is an example of a state that has gone done the wrong path.
A graduated SC income tax that starts at, say, 3% and tops
out at 6% for very large incomes would be about right.
6) Minimize/eliminate the tax exemptions & deductions
for "special stuff". Mr. & Mrs. John Doe shouldn't
be forced to subsidize some whim or stylish fad or feel good
stuffed into the tax code by a few powerful politicians. If
people want to support special causes, let them do it with
their own money!
I can attest that eliminating the general sales tax and utilizing
business profits taxes works. NH [my former state before moving
here] is a business dynamo. In fact, NH had no state income
tax either. Yet NH has fine schools and a great business climate.
Neighboring Vermont [with its sales taxes, income taxes, etc.]
is a state that is almost disappearing with an economy that
stinks. It is not my speculation that this is a better tax
stratagem, it is a proven fact.
-- Bruce D. Woods, Seneca, S.C.
Recent
feedback
- 6/19: Decent
wages, more needed, Mary Mack, St. George, SC
- 6/19: Better
attitude needed on education, Otto Wahlrab, Hilton
Head Island, SC
- 6/18: Look
at ability to pay, David Whetsell, Lexington, SC
- 6/14: Wealthy
control the debate, Municipal employee, name withheld
upon request.
- 6/13: On
target, Bob Henderson, North Charleston, SC
- 6/13: Do
your homework, Ralph Bristol, Greenville, SC
- 6/12: Neanderthal
thinking, Natalie Mann, Bluffton, SC
- 6/12: Right
on property tax reform, James A. Fleming, Bennettsville,
S.C
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Here's a "thumbs up" and "thumbs down" related to various
political news items from the past week:
Thumbs
up
McMaster, Lloyd. Former US Attorney for South Carolina
Henry McMaster, now the state attorney general, and current
US Attorney Reginald Lloyd deserve fair game awards for putting
together a joint task force to go after cases of public corruption
in this state. Anyone - elected and appointed state officials
and local council members and other local officials - could
be investigated and if there is enough evidence indicted and
prosecuted. Given the growing number of indictments in small
municipalities, for instance, the task force will no doubt
have its double-whammy - federal and state - work cut out
for it.
Warning. Fire Chief Anthony Stith of Sullivan's Island
and Isle of Palms Fire Chief Ann Graham have a good idea:
a rip tide warning system. With rip tides apparently more
fierce and more often this year, perhaps because of environmental
effects, some better means of notifying lifeguards, fire departments,
beach patrols and other police agencies of warnings as they
come from the National Weather Service. Almost every agrees
that every agency should assure beachgoer and emergency crews
know the warnings are put. A siren or horn sound might be
used in addition to current efforts such as warning flags
and two-way radios to lifeguards.
In
the middle
The rushing Assembly. The General Assembly, for political
reasons best known to be "power," decided to strip
the state's Criminal Justice Academy from the Department of
Public Safety and make it independent. The legislation was
found to make the changeover immediate, but some of the non-state
appointments had not yet been made, leaving the academy without
a full board to control training all the state's policemen.
The state officials, including five of the governor's cabinet
and the attorney general, took up the slack until representatives
of police chiefs and sheriffs can be appointed. The result:
the Academy is back in service, with the same director and
the same chairman as it had when it was not independent.
Smith. Sen. Verne Smith, R-Greenville, has resigned
because of illness that kept him away from the Statehouse
all of this year's session. The plaudits were immediate for
his lengthy service; as the second in seniority in the Senate,
Smith chaired the Labor, Commerce and Industry Committee.
No doubt his service that concentrated on children, health
and education will be remember for his intensity, but his
service will also be remembered from 2000 for a more controversial
issue. That is when he, as a senior Democrat, decided to switch
to the Republican Party, thus pushing the Senate into becoming
a majority GOP.
Thumbs
down
Eckstrom. Comptroller General Richard Eckstrom is showing
why he should only be in charge one time of the state Budget
and Control Board. Twice now, once in the last meeting and
again in news reports more recently, Eckstrom refused to vote
to allow an attorney to be hired for the state Ethics Commission
to defend itself against a suit. Both the attorney general's
office and the commission's own attorney have potential ethical
reasons not to get involved, and Eckstrom apparently has a
political reason that suits him. The suit involves government
in the sunshine, whether an out-of-state based conservative
political organization operating in this state must give up
its fiscal data to the Ethics Commission for public consumption.
The organization is joined at the hip with private schooling
Republican candidates, and Eckstrom is a Republican.
Council. Normally, the Legislative Audit Council would
be getting applause because its investigations tend to be
so thorough to state agencies. This time, well maybe not.
As a creature of the Legislature, it was asked - only after
reporters from The State newspaper asked legislators
if they would make a complaint - to investigate the money
spent on the world's first successful submarine, the H.L.
Hunley, recovered near Charleston from its watery grave. The
amount of state money spent is in dispute. The LAC director,
George Schroeder, says it would be a conflict for it to investigate
the Legislature, to which the LAC reports. The audit could
still be undertaken if the General Assembly approved independent
spending to an outside firm that would do the same thing as
the LAC. If there's still a demand, of course.
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