Rizzo Supports Increasing Earned Income Tax Credit

Governor Baker and the Massachusetts Senate have put forth two separate proposals to increase the Earned Income Tax Credit for working families in our state.  This is a brave step to address income inequality for the residents of our state and should be commended.

As Mayor of Revere, I meet residents everyday who are working hard to raise a family, pay the bills, and have a little bit left over at the end of the month to save for emergencies.  Increasing the Earned Income Tax Credit for working families will help lift more residents into the middle class and put them on a path to long term economic security.

The current Massachusetts EITC was established in 1997 at 15% of the Federal EITC rate.  If someone receives $100 in Federal EITC, they will receive an additional $15 from the state.  This program has been shown to be one of the most effective tools in fighting poverty and lifting incomes for working people.  Currently, approximately 415,000 Massachusetts residents, including 4,668 in the city of Revere, receive the EITC on an annual basis.  This program rewards work over wealth and has both long term and short term benefits.

Recent studies have shown that the majority of the EITC benefits go to families with children.   In addition, children from EITC households have been shown to have higher test scores, higher high school graduation rates, and higher college attendance rates.  Long term studies have shown that children who grow up in EITC supported households tend to earn more when they are working adults.

Governor Baker proposed doubling the EITC from 15% to 30% while repealing the film tax credit as a way to pay for the increase in EITC.  The Governor deserves a large amount of credit for putting a proposal on the table and a method to pay for a majority of the increase.  The Senate also adopted an amendment to examine the film tax credit to potentially restructure it in a way that maximizes the credits to Massachusetts based businesses and residents.

The Massachusetts State Senate recently voted to guarantee a tax cut for all taxpayers in the Commonwealth that focuses on helping working families and not rewarding wealth.  The Senate plan increases the EITC from 15% to 22.5% over three years while also increasing the personal exemption for all taxpayers.

It’s up to the legislature and the Governor to figure out which plan will be adopted but I commend them both for starting the conversation about how we address helping working families in a meaningful way by putting specific plans on the table.

Recent studies have shown a widening wealth gap in Massachusetts and increasing the EITC is a start to address income inequality to help those who need it the most.  The combination of wage stagnation and increased housing and energy costs has put a drag on our economy and we need to reward the hardworking people of Revere rather than those at the top.  I strongly support the efforts at the state level to increase the EITC for working families.

Dan Rizzo is the current Mayor for the City of Revere.

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  • The Earned Income Tax Credit (EITC) is a subset of an individualized Negative Income Tax (NIT). The US currently spends $1tn on welfare[1] including EITC and excluding social security and Medicare. Of that $1tn figure, approximately $430bn is spent on medicaid and CHIPS leaving a remainder of $570bn for welfare. This $570bn represents 83+ welfare programs including EITC. A more equitable and economically advantageous use of these funds may be realized by implementing a tax-free, garnish-free, individual, citizen's NIT,... a pre-taxed basic income[2] if you like. In line with poverty guidelines[3] and goals of a sustainable zero population growth (2 parents, 2 children), the budget for a NIT would be roughly in a range from $540bn to $750bn, where the difference of $210bn represents the NIT tapering costs to $27K individual median wage[4]. The shortfall of $180bn ($570bn - $750bn) for EITC would need reductions in other areas of the budget to balance, without raising taxes or borrowing. This is a moot point for considering the balance of guns and butter[5] for government expenditures. The base of $540bn would represent a subsidy to the unemployed and the $210bn tapering costs would represent a subsidy to business for payrolls, analogous to EITC . This may apply to workforce age group 16-64. There would be no need to complicate matters with issues of threatening Social Security, Medicare, Medicaid or CHIPs. It is presumed the NIT would be tax-free, garnish-free, exclusive to citizens and funded by all businesses and workers through the payroll tax, as usual. A special consideration for the ~0.4mn orphans[6] and those rare cases 65 and over that do not qualify for the equivalent social security would be factored in, relatively insignificant figures. Besides the obvious benefits to business, the working poor and the long-term unemployed, M2 Velocity[7] would be increased without raising M2 supply[8], raising taxing, adding to national debt, borrowing or monetary price inflation facilitated through the Federal Reserve. This increased economic activity, arising from increased M2 Velocity, is good for every size of business and labor. It also increases domestic labor competitiveness with cheap foreign labor and makes our government more cost efficient by reducing overhead costs and red-tape. It is essentially a fiscal alternative to QE/ZIRP trickle-down policy ineqality outcomes[9]. Additional unseen benefits are visible to the discerning eye. Some rough calculations are provided here*: WF: ~160mn workforce of ~320mn population FPL: ~$12K Federal Poverty Level MW: ~$27K Median Wage ZeroToFPL: ~45mn number below FPL FPLtoMW: ~35mn (WF/2 - ZeroToFPL) number between FPL and MW Minimum = ZeroToFPL X FPL = $540bn Maximum = Minimum + (FPLtoMW X FPL)/2 = $750bn * These are very rough figures and subject to mathematical and statitical errors. [1] Crs report: welfare spending the largest item in the federal Budget | Congressional Research Service http://www.budget.senate.gov/republican/public/index.cfm/files/serve/?File_id=34919307-6286-47ab-b114-2fd5bcedfeb5 http://www.budget.senate.gov/republican/public/index.cfm/2012/10/crs-report-welfare-spending-the-largest-item-in-the-federal-budget [2] The Negative Income Tax and Basic Income are pretty much the same thing http://www.adamsmith.org/blog/tag/basic-income/ [3] 2015 Poverty Guidelines | HHS http://aspe.hhs.gov/poverty/15poverty.cfm [4] Measures Of Central Tendency For Wage Data | SSA http://www.ssa.gov/oact/cola/central.html [5] Guns and Butter Curve | Investopedia http://www.investopedia.com/terms/g/gunsandbutter.asp [6] Facts and Figures | CCAI http://ccainstitute.org/index.php?option=com_content&view=category&id=25&layout=blog&Itemid=43 [7] Velocity of M2 - United States | tradingeconomics http://www.tradingeconomics.com/united-states/velocity-of-m2-ratio-q-sa-fed-data.html [8] United States Money Supply M2 | tradingeconomics http://www.tradingeconomics.com/united-states/money-supply-m2 [9] Causes and Consequences of Income Inequality | IMF http://www.imf.org/external/pubs/cat/longres.aspx?sk=42986.0

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