New York’s Working Family Tax Credit was first introduced and set as a permanent fully refundable child tax credit.
New York’s Working Family Tax Credit Offers Fully Refundable Child Tax Credit (PHOTO: USA Today)
New York’s Working Family Tax Credit
The Empire State Child Credit (ESCC) was a classic kludge, was passed but turned ugly in the process. 2017 tax reforms were structured before Congress as the credit is worth 33 percent of the federal child tax credit, it famously excludes children younger than four years old. Legislators in New York have been studying reforms to fix these perceived flaws for as long as it’s been law.
Senator Andrew Gounardes (D), led the growing cohort of reformers in sponsoring an ambitious bill (S277) that would consolidate the ESCC and the children’s portion of New York’s state Earned Income Tax Credit (EITC) into a single expanded Working Families Tax Credit that would provide per child a $500-$1,500.
Benefits
The structure of the proposed Working Family Tax Credit is a significant improvement over the two refundable tax credits it would replace. As a fully refundable and universal credit, it would reach all families with children, supplying them with aid to help with the cost of increasing them. The Working Family Tax Credit extends eligibility to children under four years old, finally fixing one of the worst features of the ESCC. Moreover, by reducing two current credits into one, the Working Family Tax Credit reduces complexity for families and allows to keep the overall cost of the reforms lower than it would be comparable to layering new credits on top of existing tax credits.
The phaseout threshold for the Working Family Tax Credit is lower than that for the ESCC but higher than that for the EITC. These threshold level modifications are less important than the added adjustments it makes for married status and lowering phaseout rates. The marriage fines made into the federal EITC and pre-2017 CTC, on which New York’s EITC and ESCC are modeled, are well known. The same stands which are accurate for work fines stemming from the phaseout of both credits.
Financial Commitment
The Working Family Tax Credit would require a substantial financial commitment. The current proposal overlooks potentially significant cost savings and simplification by going even further and consolidating additional overlapping family tax benefits. Replacing the EITC $807.5 million and ESCC $616 million provides the bulk of the savings but the dependent exemption $279.5 million and CDCC $167 million are also big-ticket things in the budget that also supply benefits to households.
The CDCC is particularly grown for consolidation. In theory, the CDCC is most abundant to the lowest-income households but only some of these families have the out-of-pocket qualified expenses to meet the eligibility requirements. Families making more than $100,000 annually are substantially more likely to receive the credit than those making less than $30,000 per year.
Working Family Tax Credit Is A Great Step
Consolidating the EITC and ESCC into the Working Family Tax Credit is a great first step. Still, no reason to stop there when the dependent exemption and CDCC could aid defray its general cost, radically simplify benefits, and leave the vast majority of families better off than they are under the status quo.
Drawbacks aside, New York’s proposed Working Family Tax Credit is the boldest state proposal we have seen since the introduction of the ESCC nearly two decades ago. With sufficient hindsight to bypass the past, the Working Family Tax Credit could be ideal for comprehensive state tax credit reform.
READ ALSO:
