One of the positive outcomes of the budget proposed by former Governor Ralph Northam as he left office was the adoption in Virginia of a refundable earned income tax credit (EITC). His proposal was included in the Conference Report between the House and Senate and was agreed to by both houses and signed by the Governor. Persons of low or moderate income who qualify will be winners in being able to keep more of their earnings to meet their personal and household expenses.
Virginia has had an EITC patterned after the federal system for many years thanks to the efforts of the late Senator Toddy Puller. The Virginia EITC was not refundable as it is in the federal system and in many other states. A refundable Virginia EITC has been advocated for by many groups who work with persons of low or moderate income including Social Action Linking Together (SALT) and its leader John Horejsi, the Commonwealth Institute for Fiscal Analysis (TCI) that did the important work of researching the issue, and others. I introduced legislation several times over a decade during Democratic and Republican administrations, but it failed to gain executive support and competed with other budget priorities. Governor Northam seized on the opportunity to make the EITC refundable during a time when the state was flush for cash that could fund it.
According to research done by TCI, about 600,000 working families in Virginia receive the federal EITC, and under the new law they will also be able to receive a state EITC that matches up to 20% of their federal credit. Because Virginia’s state EITC has not been refundable in the past, most families who qualify for the credit do not receive the full amount of the state EITC. A refundable state EITC will provide them a larger tax refund and help to offset sales, excise, and property taxes paid which contribute to Virginia’s tax code being upside down. One advocacy group calculated that for every $10,000 in income, lower-income Virginians pay $980 in state and local taxes while the wealthiest 1% pay only $700. Lower-income Virginians do not qualify for the many credits and advantages that those who make more money can use to lower their tax burden. This EITC change can help bring some fairness to tax policy while helping those of lower income keep more of their earnings to buy their groceries, pay their rent, and fill their prescriptions.
The tax policy that the new policy replaces limited the effectiveness of the state EITC, with particularly negative consequences for racial equity. The state’s Commission to Examine Racial and Economic Inequity in Virginia Law had recommended that the state enact a partially refundable EITC, noting that the policy “would help to increase incomes for working families in Virginia, particularly for Black and Latinx families who, and despite working, are more likely to be excluded from the current nonrefundable credit due to having low incomes.”
I am pleased to have been part of this important change in tax policy, but I fear that under the new administration it might be vulnerable. We have made progress, but we will need to work together to keep it!
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