The dream of a tax exemption for working families remains alive in Olympia.
In 2008, Washington state lawmakers passed a tax exemption for low-income working people, which works similarly to the federal earned income tax credit by giving rebates back to those who qualify.
It came just as the Great Recession emerged, chilling tax collections and lawmakers. Then-Gov. Christine Gregoire chose not to fund it.
In the years since, legislators and Gov. Jay Inslee have put forth many proposals to fund the program, which would help as many as half a million state residents. But they have always opted against funding the program — which could cost hundreds of millions of dollars — as they prioritized other spending needs.
Now, a slew of Democratic lawmakers are signing on to House Bill 1297, which would expand the tax credit to give up to $950 for some families and make the program easier to administer.
Sponsored by Rep. My-Linh Thai, D-Newcastle, the bill is scheduled for a public hearing Tuesday in the House Finance Committee.
The proposal comes as lawmakers grapple with an uncertain state budget picture during the COVID-19 pandemic. At the same time, working-class people have been struggling as businesses shut down amid restrictions and customers shy away from spending.
For her part, Thai said funding the program was “the right thing to do yesterday.”
“It’s about time, don’t you think?” she asked.
This year’s renewed push brings a twist: Half a dozen House Republicans have signed on in support, giving Thai’s bill 45 total co-sponsors. That’s nearly half the House of Representatives.
Rep. Drew Stokesbary, R-Auburn, said he’s been making the case with fellow Republicans to support the concept in recent years as a way to reduce the burden on low-income taxpayers.
“You rarely see taxes go down or get applied more narrowly, but you often see them go up or applied more broadly,” said Stokesbary, a co-sponsor. “If the tax code is as regressive as it is, why is it taking so long to relieve the burden on the lowest-income people?”
Along with the federal government, 29 other states, as well as the District of Columbia, Puerto Rico and Guam, have some type of earned-income tax credit program, according to the National Conference of State Legislatures.
The programs reduce tax liability, leaving those who are eligible with more money in their pockets. Rebates differ between different programs, according to NCSL, but they generally are calculated according to income level, marital status and the number of dependent children.
To qualify for the federal credit for last year, a married couple filing jointly with no eligible children must earn less than $21,710. That threshold increases by the number of children. At the top level, a married couple filing jointly with three or more eligible children must earn less than $56,844.
Washington’s current law would give a rebate of 10% of the federal tax credit for qualifying people. If funded now, the estimated cost of the program would start at around $170 million over two years.
Thai’s bill would simplify the current program by designating a credit of $500 per eligible person, according to a legislative analysis of the bill. Then, households that qualify would get an additional $150 for each dependent child up to three, creating a maximum rebate of $950.
As the income level of qualifying tax filers increases, the dollar amount phases downward, meaning only the lowest-income people get the full benefit.
Her bill would also expand the program to those with individual taxpayer identification numbers, such as resident and nonresident immigrants, and their spouses and dependents who can’t get a Social Security number.
Meanwhile, House Bill 1319 by Rep. Chris Corry, R-Yakima, would expand the existing Washington law to 20% of the federal earned income tax credit.
Enacting the Working Families Tax Exemption would help communities of color harmed historically by racism and also help the state recover from the pandemic, said Margaret Babayan of the Washington State Budget and Policy Center. She, along with Democratic lawmakers, describe it as a good way to make Washington’s tax system less regressive.
“We know that this is a really great way to offer targeted and equitable support,” said Babayan, a policy analyst with the left-leaning think tank.
As he has done in the past, Inslee this year proposed to fund the tax credit by raising new revenue. The governor provides an option to pay for it in his current budget plan by raising money through a proposed carbon cap-and-trade program.
“I think he is open to how it is funded, he believes this is important to help with the upside down nature of the tax system and put more money back into the pockets of lower income people,” Inslee spokesperson Tara Lee wrote in an email.
With current pressures on the new state budget, funding the tax credit would mean taking money from schools or other programs, said House Democratic Speaker Laurie Jinkins of Tacoma.
“I like it, I’d like to fund it,” Jinkins said. “But I think we’re still looking at what it is we can do.”
Republicans have contended that recent improvements in the economy have put budget writers in better shape, meaning the tax rebate could be funded without new taxes.
Senate Minority Leader John Braun, R-Centralia, said he would support funding the rebate. He described it as “another very reasonable way” to provide more fairness in the tax system.
“I think absolutely this is something we can find room to fund,” Braun said. “Without new taxes, just to be clear.”
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