Op-Ed: St. Louis Needs an Earned Income Tax Credit

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In 1975, the Ford Administration pushed out the federal Earned Income Tax Credit as a way to shield low-wage workers from the harsh effects of rising payroll taxes. Today, the credit earns more than 27 million low-income Americans over $66 billion in collective savings. The widely-acclaimed program has been regarded as one of the government’s most effective tools for combatting poverty. In fact, it’s been so successful, that 26 states have adopted their own earned income tax to supplement the federal tax credit. Sadly, Missouri is not one of those states.

Despite overwhelming support from progressive groups, the St. Louis Regional Chamber, and the Show-Me Institute, Missouri remains without added EITC benefits. Senator Caleb Rowden had filed a bill for a state EITC this year, but the proposed bill stalled after a second reading in the Senate. With pre-filing beginning in December the bill could, and should be filed again. Why should St. Louis and the rest of Missouri get behind an in-state EITC? There are three primary benefits the tax credit would provide.

1) A Reduction In Poverty

First and foremost, an earned income tax credit would help to reduce the city’s poverty rates. The most recent numbers indicate that approximately 34,409 individuals, or 10.9% of the city’s population falls below the poverty line. Moreover, an estimated 37,486 St. Louis residents are receiving some form of welfare.

The federal EITC has already helped lift 9.8 million individuals out of poverty and that number would be greater with additional state relief. By allowing a tax credit in the amount of 20% of the federal credit, low- to moderate-income working families would be able to boost their financial position with additional tax savings. Being that the average federal EITC for the state of Missouri is $2,377, a supplemental state credit would add an an additional average of $475.4 per year into the pockets of qualified individuals. These savings could be used to make utility payments, pay off medical expenses, and invest in lifestyle improvements.

Furthermore, the credit is tiered based on income up to a certain threshold. The tiered tax relief incentivizes individuals to work and earn more, which in turn reduces the number of individuals on welfare.

2) An Increase In Education

In addition to improving financial health for households, an in-state EITC would help bolster secondary education enrollment. A study conducted by Michigan State University found that the federal EITC increased the probability of high school graduation by 2.1%, and increased the probability of college enrollment by 1.4% for children in low-income households.

Greater tax savings provides a means for families to invest more into secondary education and there’s absolutely no denying that a more educated population would lead to an even brighter future for the city of St. Louis.

3) A Boost To The Local Economy

Last, but not least, the proposed in-state EITC would provide a boost to the local economy. More money in individuals pockets generally equates to more spending power, which creates a ripple effect. A study conducted by the city of San Antonio, TX found that each dollar saved as a result of the EITC generates $1.58 in local economic activity. If 30,000 people each spend an extra $1.58 in a year, that’s enough to support an additional job. With 519,000 individuals currently claiming the federal EITC in the state, an additional credit could have an immense positive impact for Missouri/St. Louis.

The Need For Local Support

The establishment of a Missouri EITC is an investment in the working families of the St. Louis region that would provide desirable returns for the entire city. A Missouri EITC would encourage city residents to find and maintain steady employment, while also placing more money in the pockets of low-income individuals who are currently employed. A stronger workforce will lead to a stronger local economy so that everyone ultimately wins.

However, a state EITC will not become a reality through sheer desire. It will require support and action on the part of St. Louis residents. When the city voices a desire for an EITC bill to be re-filed, those in the senate and house will listen. Overwhelming support of the policy would undoubtedly push the bill further than a second read in the senate.

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  • Benjamin Aronov

    1. Audit the City.
    2. Get rid of the Income Tax.
    3. Lower the sales tax.
    4. Reduce the number of Alderman TODAY.
    5. Cut wasteful programs.
    6. Focus on the basics, better trained and accountable policing and a well functioning school district. Let the rest of the city’s services go out to contracts, renewed bi-annually, with democratically elected supervisory boards.

  • HawkSTL

    This is an awful idea. These people already don’t pay state income taxes. Now, under this proposal, they receive money for …. existing? Who does the money come from? The rest of us who actually make a living. Socialism only works until you run out of other people’s money. No thanks.

  • Houkah_Smokes

    People at the lower end definitely need a helping hand. The national norm is 26 weeks for unemployment benefits. Missouri changed their law on unemployment benefits, reducing it from 20 weeks to 13 weeks. It’s hard to find a job these days for those at the lower end so trying to find a job within 3 months can be a challenge. 1000 Scottrade workers will lose their jobs and most are middle skills jobs. I sure hope they all land somewhere within 3 months. Take a look at this article.

    http://www.stltoday.com/news/local/govt-and-politics/missouri-lawmakers-vote-to-slash-unemployment-benefits/article_f3f36cd0-76e8-50e3-8812-914fa9ecf66d.html

    • 20inaPackSmokes

      I think Hawaii is the state that is proposing a universal guaranteed income for those permanently displaced from the economy. I wonder if other states will adopt.

  • CSA

    I would favor a credit that rewards personal improvement/development (likes kids staying in school, community involvement) as opposed to a credit that rewards low wages and multiple children. It has been argued that any consumer tax increases (like gasoline or tobacco) has a more adverse effect on low income individuals.

  • tpekren

    Missouri is a tough one in terms of low cost, low tax, low service state that can barely meet basic commitments with its budget and has some of the lowest paid, compensated state employees in the nation..
    What doesn’t help is the low state gas and cigarette taxes as well as the absurd amount of various tax credits that take away from the budget. Most states, including red states, have recognized that you need the revenue one way or another to maintain your roads and to meet minimum health needs & both gas & cigs taxes tackle those budget items from the users, or most likely users from health perspective.

    Increasing the state cig tax at a minimum & reforming current tax credits in order to utilize some of those additional tax revenues for an earned income tax credit is an avenue that makes a lot of sense to me.

  • rgbose

    Wished instead of passing a state income tax cut on the top bracket, that would phase in with easily-met revenue thresholds, they’d increased the amounts of the brackets. I don’t think they’ve been changed since like 1930. Like dropping the bottom five all together and doubling the top five or some such.

  • rgbose
  • matt

    Name of the article should be “Missouri needs a EITC”, because you could argue for a St Louis City EITC too, but you didn’t here.

    Also you are citing the wrong FRED data for poverty rates – you pulled St. Louis County. St. Louis City has a 27% poverty rate
    https://fred.stlouisfed.org/series/S1701ACS029510

    • tpekren

      Thanks Matt, I got the same impression from the title and assumed it was a discussion on St. Louis City earnings tax.

      I think the poverty is high enough that their is not much of a discussion between a few percentages. The big issue is how do you swing a big change or decrease in that percentage

  • WikiWild

    It’s s good idea but I’d say that the regressive 1% earnings tax is larger burden that inhibits economic growth more than the lack of an EITC.