Amid Gov. Dannel P. Malloy’s budget proposals this week was the inclusion of an Earned Income Tax Credit for low-income families. The measure, much sought by Democrats and often derided by Republicans, has the unlikely impact of turning each party’s rhetoric against itself.
The initiative would provide up to about $1,700 for workers making below $40,000 annually, because it ends up as a credit for taxpayers who don’t have any tax liability on their income. Many beneficiaries receive much more money than they owed in taxes. The initiative is expected to impact 190,000 families in Connecticut and cost between $108 and $110 million.
Confronted with a $3.2 billion deficit, a tax credit for taxpayers who don’t pay income taxes strikes some Republicans as ill advised. But it hasn’t always been this way. It was actually a Republican President, Richard Nixon, who proposed an early predecessor to an EITC called the Family Assistance Plan (FAP) in 1969. Though it was not adopted, the first EITC was adopted during the Presidency of Republican Gerald Ford in 1975.
Conservative hero President Ronald Reagan was a champion of an Earned Income Tax Credit (EITC) during his 1986 efforts to simplify the tax code. Mr. Reagan called it, “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”
Expect to hear each of these facts, especially President Reagan’s quote, over and over again during the debate on the issue.
Democrats face the matter differently. Many Democratic legislators, such as Senate Democratic Leader Don Williams, have spent much of the last six weeks railing against tax expenditures already enshrined in law. Though obviously different from the Film Tax Credit or other business tax credits that have the potential to create jobs, EITC remains a tax expenditure if ever there was one.
Moreover, at a time when other taxpayers are being asked to shoulder a $1.5 billion tax increase, it may strike some citizens as strange that the state would seek to pay out $110 million more simultaneously. The first rule of holes is stop digging, the first rule of fight club is don’t talk about fight club, and the first rule of having more money is not spending more money.
The enactment of an Earned Income Tax Credit promises to be but one flashpoint in the broader battle to enact a budget that addresses Connecticut’s deficit while setting the state on a path toward economic development and growth that it hasn’t experienced in a long time. Whether either party can escape its own rhetoric to confront the budget in an honest way remains very much in doubt.
Heath W. Fahle served as executive director of the Connecticut Republican Party from 2007-2009. Contact Heath about this article by visiting www.heathwfahle.com