Editor’s note: Rep. Warwick Sabin, D–Little Rock, the author of this guest commentary, is the lead sponsor on House Bill 1344, which is on the agenda for the House Committee on Revenue and Taxation Tuesday, March 24th. He can be reached by email at [email protected].
During this Regular Session of the 90th General Assembly, we have passed a significant income tax cut for middle class Arkansans (defined as those with an annual income of between $21,000 and $75,000 per year), and we are also on a path toward restoring the capital gains tax cuts of 2013.
As the session comes to a close, legislators will now have the opportunity to consider a tax reduction for our low-income workers who were largely left out of the recent tax cuts. The Working Families Opportunities Act (WFOA) targets that relief for working families through tax credits that incentivize work by making them contingent on earned income like salary and wages.
The WFOA would provide the approximately 279,000 Arkansans who receive the federal Earned Income Tax Credit (EITC) each year with an additional 1.25 percent of their federal credit amount in 2016, 2.5 percent in 2017, and 5 percent by 2018.
Tax credits like those in the WFOA are our most effective tool for moving families out of poverty. That is why the federal EITC has received broad bi-partisan support since its inception in the 1970s, and it is why half of the states and the District of Columbia have implemented their own versions. President Ronald Reagan called the federal version “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”
It is not a handout; you have to work to receive the credit.
The working families who would be eligible for WFOA already pay a much higher share of their income to state and local taxes than wealthy Arkansans. The lowest 20 percent of Arkansans pay the highest state and local tax rates as a share of their income than any other group — twice the rate as the top one percent. These credits simply help working families keep more of what they earn.
It does not take long for those who take advantage of WFOA-style credits to get back on their feet. Three out of five people who take advantage of this type of credit only use it for one or two years at a time. WFOA credits help people make ends meet while working at low wages so that they can stay employed and take advantage of opportunities to make a better life for themselves and their families.
Not only will the WFOA invest directly in workers, it will also invest in their children and our local economies. Today, nearly 30 percent of Arkansas children live in poverty and many of those children are living in intergenerational poverty. However, outcomes for children living in families receiving the federal EITC — and by extension, the state tax credit — show improved health and academic outcomes, greater lifetime earnings, and, as a result, a reduction in the risk of a lifetime of poverty. One study found that every dollar of tax credit refunds resulted in $1.58 in total economic activity, and every $37,000 resulted in a permanent job added to the community.
The bottom 20 percent of Arkansans make less than $17,000 a year and get no benefit from the recently passed tax cuts. The next 20 percent of Arkansans make between $17,000 and $30,000 year and only get an average tax cut of about $3 a year. The Working Families Opportunities Act helps to bridge that gap, and it does it in a way that rewards work, helps reduce poverty, and invests in our children and local economies.
I am grateful that the chairmen of the House and Senate Revenue and Tax Committees, Representative Joe Jett and Senator Jake Files, have agreed to co-sponsor this legislation, and I look forward to adding one more significant benefit for working Arkansans to the other tax cut initiatives we have passed during this session.