Sep 17, 2018

Recent articles

20th Anniversary Milestones: The Long and Winding Road for Colorado’s EITC

by | Sep 17, 2018

Workers supporting their families now benefit from a state Earned Income Tax Credit (EITC) thanks in large part to Colorado Center on Law and Policy’s decades-long efforts to put extra dollars into the pockets of Coloradans in low-income jobs. The tax credit benefits workers with children as well as individuals with extremely low wages.

Widely considered one of the most effective tools for fighting poverty, the federal EITC was established in 1975 and expanded on a number of occasions since then. Because the EITC grows with each additional dollar of earnings until reaching the maximum value, studies show that the EITC encourages large numbers of single parents to return to work while giving workers in poorly paying jobs an incentive to increase their work hours. Specifically, a 2015 study showed that a $1,000 increase in the EITC leads to a 7.3 percentage point increase in employment — demonstrating that the tax credit is even better at fighting poverty than what earlier Census data suggested.

The Colorado EITC was first enacted in 1999 when legislators faced a budget surplus of $900 million amid a booming economy. Because the Taxpayer’s Bill of Rights (or TABOR), approved by Colorado voters in 1992, limited the amount of revenue the state could collect, legislators lowered the income tax rate from 5 percent to 4.75 percent and considered tax breaks for everything from investing in new farm equipment to adding new phone lines.

“Basically, it seemed like every lobbyist was working on a tax break for their own client. It was as if every corporation had an idea for a tax credit for themselves,” said Chaer Robert, who was involved with efforts to approve, increase and implement the state EITC over 16 years through her role as president of the Women’s Lobby of Colorado. Robert also served as chair of the EITC Coalition and more recently as Manager of the Family Economic Security program at CCLP.

A pioneering advocate of a state EITC, Maureen Farrell-Stevenson, then Executive Director of CCLP, believed that as long as employers were benefitting from new tax breaks, ordinary workers ought to benefit too. Gov. Bill Owens himself called for broad-based tax cuts to include an EITC in addition to cuts in the sales tax and income tax rates.

In 1999, Farrell-Stevenson and CCLP Policy Analyst Adela Flores partnered with the Women’s Lobby of Colorado. They worked with the late Rep. Gary McPherson to establish a state EITC. The successful bill was among four introduced that created the State EITC as a “top-priority” TABOR refund mechanism to be paid to qualifying Coloradans at 8.5 percent of the federal EITC during years when there was a surplus of taxpayer revenue. McPherson sponsored another proposal which raised the state EITC from 8.5 percent of the federal level to 10 percent the following year. At the same time, legislators voted to permanently reduce state income taxes from 4.75 percent to 4.63 percent. Qualifying Coloradans also received the tax credit in 2001 before the state’s economy took a turn for the worse.

Since the tax credit was predicated on a TABOR surplus, the EITC wasn’t paid from 2002 through 2005 because of insufficient tax revenue. The credit wasn’t paid in the 2006 or 2007 tax years because the voter-approved Referendum C suspended the TABOR limit for five years to support K-12 education, higher education, health care and transportation. In the years following the Great Recession of 2008, there were no TABOR surpluses and therefore no EITC, though workers needed financial relief more than ever.

But despite bipartisan support, efforts to make the EITC permanent — whether or not there was a TABOR surplus — failed year after year amid concerns about the state’s economy and lack of tax revenues.

In 2008, after several years without an EITC, Farrell-Stevenson and Kathy White of the Colorado Fiscal Policy Institute (then a project of CCLP) crafted a bill to fund the tax credit at 10 percent of the federal level using Unemployment Insurance (UI) surcharge dollars and unused federal dollars — or reserves — from the Temporary Assistance for Needy Families program (or TANF) which provides cash assistance for the lowest-income Coloradans. The measured was sponsored by Rep. John Kefalas and Sen. Betty Boyd. A very active EITC Coalition, which included Colorado Progressive Coalition (now COPA), 9to5 Colorado, All Families Deserve a Chance Coalition, Women’s Lobby of Colorado and dozens of other organizations brought hundreds of community members to the capitol in support.

White, who later continued her work on the EITC through the Colorado Fiscal Institute, said the proposal was supposed to be a “temporary fix” but the business community was “up in arms” about the legislation because they feared it could trigger an increase in required employer UI contribution. Meanwhile, county administrators disliked the notion of tapping into the TANF reserves, despite having reserves that exceeded their annual operating budgets. As a result of the opposition, the bill died swiftly in the House Finance Committee.

“Too many constituencies didn’t like it,” White recalled. “The outcome was really disappointing.”

The following year, Sen. David Schultheis sponsored a bill that would abolish the state EITC and all other TABOR refund mechanisms except for the state Sales Tax Refund. With the economy still in the doldrums at that time, Schultheis reasoned that the state might have different priorities when the recovery came. The EITC Coalition successfully lobbied to defeat the legislation and continued to rally behind the EITC for years to come.

In 2010, House Bill 1002 restored the state EITC as the primary TABOR refund mechanism. In 2013, with Colorado Fiscal Institute leading the EITC Coalition, Sen. John Kefalas, Sen. John Morse and Rep. Daniel Kagan sponsored a successful bill that made the state EITC permanent once it is triggered by a TABOR surplus. The legislation also created a state Child Tax Credit for children under 6, which was made contingent upon Congress passing a tax on internet sales.

With the economy gaining steam, a surplus finally triggered payment of the EITC in 2015, and Colorado residents who qualify have used the now permanent tax credit to defray state income taxes ever since. Though proponents would like to increase the state tax credit to a higher level or expand it so that more Coloradans would qualify, the current EITC still gives working Coloradans a nice boost in income.

“If people have kids, even adding $300-$400 a year can make a big difference,” Robert said.

White said she appreciates the multiplier effect of the EITC. She cited an anecdote where a single mother used the savings from the tax credit to buy diapers in bulk and pay her car insurance along with school fees and swim lessons for her child.

“The EITC is great because people take that money and exercise their own financial acumen and do what’s best for them,” White said. “And that’s what helps get them ahead.”

-By Bob Mook

Recent articles

HEALTH:
HEALTH FIRST COLORADO (MEDICAID)

To maintain health and well-being, people of all ages need access to quality health care that improves outcomes and reduces costs for the community. Health First Colorado, the state's Medicaid program, is public health insurance for low-income Coloradans who qualify. The program is funded jointly by a federal-state partnership and is administered by the Colorado Department of Health Care Policy & Financing.

Benefits of the program include behavioral health, dental services, emergency care, family planning services, hospitalization, laboratory services, maternity care, newborn care, outpatient care, prescription drugs, preventive and wellness services, primary care and rehabilitative services.

In tandem with the Affordable Care Act, Colorado expanded Medicaid eligibility in 2013 - providing hundreds of thousands of adults with incomes less than 133% FPL with health insurance for the first time increasing the health and economic well-being of these Coloradans. Most of the money for newly eligible Medicaid clients has been covered by the federal government, which will gradually decrease its contribution to 90% by 2020.

Other populations eligible for Medicaid include children, who qualify with income up to 142% FPL, pregnant women with household income under 195% FPL, and adults with dependent children with household income under 68% FPL.

Some analyses indicate that Colorado's investment in Medicaid will pay off in the long run by reducing spending on programs for the uninsured.

FOOD SECURITY:
SUPPLEMENTAL NUTRITION ASSISTANCE PROGRAM (SNAP)

Hunger, though often invisible, affects everyone. It impacts people's physical, mental and emotional health and can be a culprit of obesity, depression, acute and chronic illnesses and other preventable medical conditions. Hunger also hinders education and productivity, not only stunting a child's overall well-being and academic achievement, but consuming an adult's ability to be a focused, industrious member of society. Even those who have never worried about having enough food experience the ripple effects of hunger, which seeps into our communities and erodes our state's economy.

Community resources like the Supplemental Nutrition Assistance Program (SNAP), formerly known as Food Stamps, exist to ensure that families and individuals can purchase groceries, with the average benefit being about $1.40 per meal, per person.

Funding for SNAP comes from the USDA, but the administrative costs are split between local, state, and federal governments. Yet, the lack of investment in a strong, effective SNAP program impedes Colorado's progress in becoming the healthiest state in the nation and providing a better, brighter future for all. Indeed, Colorado ranks 44th in the nation for access to SNAP and lost out on more than $261 million in grocery sales due to a large access gap in SNAP enrollment.

See the Food Assistance (SNAP) Benefit Calculator to get an estimate of your eligibility for food benefits.

FOOD SECURITY:
SPECIAL SUPPLEMENTAL NUTRITION PROGRAM FOR WOMEN, INFANTS AND CHILDREN (WIC)

Every child deserves the nutritional resources needed to get a healthy start on life both inside and outside the mother's womb. In particular, good nutrition and health care is critical for establishing a strong foundation that could affect a child's future physical and mental health, academic achievement and economic productivity. Likewise, the inability to access good nutrition and health care endangers the very integrity of that foundation.

The Special Supplemental Nutrition Program for Women, Infants and Children (WIC) provides federal grants to states for supplemental foods, health care referrals, and nutrition information for low-income pregnant, breastfeeding and non-breastfeeding postpartum women and to infants and children up to age five who are found to be at nutritional risk.

Research has shown that WIC has played an important role in improving birth outcomes and containing health care costs, resulting in longer pregnancies, fewer infant deaths, a greater likelihood of receiving prenatal care, improved infant-feeding practices, and immunization rates

Financial Security:
Colorado Works

In building a foundation for self-sufficiency, some Colorado families need some extra tools to ensure they can weather challenging financial circumstances and obtain basic resources to help them and their communities reach their potential.

Colorado Works is Colorado's Temporary Assistance for Needy Families (TANF) program and provides public assistance to families in need. The Colorado Works program is designed to assist participants in becoming self-sufficient by strengthening the economic and social stability of families. The program provides monthly cash assistance and support services to eligible Colorado families.

The program is primarily funded by a federal block grant to the state. Counties also contribute about 20% of the cost.

EARLY LEARNING:
COLORADO CHILD CARE ASSISTANCE PROGRAM (CCCAP)

Child care is a must for working families. Along with ensuring that parents can work or obtain job skills training to improve their families' economic security, studies show that quality child care improves children's academic performance, career development and health outcomes.

Yet despite these proven benefits, low-income families often struggle with the cost of child care. Colorado ranks among the top 10 most expensive states in the country for center-based child care. For families with an infant, full-time enrollment at a child care center cost an average of $15,140 a year-or about three-quarters of the total income of a family of three living at the Federal Poverty Level (FPL).

The Colorado Child Care Assistance Program (CCCAP) provides child care assistance to parents who are working, searching for employment or participating in training, and parents who are enrolled in the Colorado Works Program and need child care services to support their efforts toward self-sufficiency. Most of the money for CCCAP comes from the federal Child Care and Development Fund. Each county can set their own income eligibility limit as long as it is at or above 165% of the federal poverty level and does not exceed 85% of area median income.

Unfortunately, while the need is growing, only an estimated one-quarter of all eligible children in the state are served by CCCAP. Low reimbursement rates have also resulted in fewer providers willing to accept CCCAP subsidies.