The Legislature’s Taxation Committee on Wednesday gave near-unanimous approval to a plan to boost incomes for low- and moderate-income working Mainers by expanding and modernizing the state’s Earned Income Tax Credit, or EITC.
The EITC is a proven-effective feature of our tax code that rewards work by boosting tax returns for individuals and families who work. The Maine EITC is based on the federal credit of the same name, which has been so successful that 29 states have adopted some version of the EITC in their own tax code. However, Maine’s credit has lagged other states. Our state EITC is the smallest in New England, and among the smallest in the nation.
The plan endorsed by the Taxation Committee would bring Maine in line with other states in our approach to helping Mainers make ends meet.
In a 12-1 vote, the Committee recommended passage of LD 104, a bill sponsored by Assistant Senate Majority Leader Eloise Vitelli, D-Arrowsic. The committee amended the bill to incorporate several modernization provisions originally proposed in legislation by Rep. Mo Terry, D-Gorham.
As amended by the committee, LD 104 would improve Maine’s EITC in several key ways:
- Larger EITC for all filers: LD 104 would increase the size of Maine’s EITC more than fourfold, from 5 percent of the federal credit to 23 percent for families with children. For adults without children, it would increase the size of Maine’s EITC from 5 percent to 70 percent. This change recognizes that childless adults receive a disproportionately small federal credit compared to families with children. A larger state credit will help make up for that discrepancy.
- Eligibility for all independent adults: The bill expands eligibility to independent 18- to 24-year-olds without children, who are currently locked out of the EITC’s benefits.
- Minimum credits to recognize more types of work: LD 104 provides a minimum credit for low-income college students and family caregivers, even if they don’t have income. Doing so recognizes their hard work and the value they create for their families and our state.
- Expanding eligibility into the middle class: It expands benefits further up the income distribution so that middle-class families will be eligible for the EITC. Families with children will be eligible on income up to $55,000 — up from the current limit of $40,320. Childless adults would be eligible on income up to $27,000, up from the current cap of $15,720.
This expansion would make a big difference for eligible tax filers in Maine. If fully funded, an estimated 177,000 households across the state would benefit, including roughly 14,000 family caregivers and 2,000 students.
To demonstrate the benefit this bill would bring to Maine families, consider the following two filers.
For example, a single parent with one child and a $35,000 annual income would see their credit grow from just $49 under current law to $451 under the bill approved by a majority of the Taxation Committee.
A 22-year-old worker with no children earning $18,000 annually would receive no EITC under current law. But under LD 104, he or she would be eligible for a credit worth $187.
When low- to moderate-income people receive their EITC, that money goes to help cover the basics — things like child care, rent, transportation, or utilities. Unlike tax credits for the wealthy, which generally end up on Wall Street or in savings, the EITC is spent in communities.
Working people need to be able to cover the basics for our state to truly prosper. When Mainers can reliably pay for the necessities, it’s easier for them to work, take care of their families, and be active participants in their communities.
Expanding and modernizing the Maine EITC will boosts incomes for hardworking Mainers with low-to-moderate incomes and it helps make our out-of-balance tax code a little fairer for the families and individuals who don’t benefit as much as the wealthiest do from recent state and federal income tax cuts.