Rather than doling out small individual income tax cuts of up to $84 per year to better off taxpayers, the South Carolina General Assembly should instead implement a Ronald Reagan endorsed pro-family, job creation measure which can have real impact—a state Earned Income Tax Credit (EITC). Twenty four states, including North Carolina and Virginia, have state EITCs.

The federal EITC is a refundable tax credit, meaning that, if the amount of the credit is more than you owe in income taxes, you get a refund check. You have to be working in order to get the credit. The credit varies by the number of children and marital status. Working families with children making less than about $36,000 to $49,000 are eligible for the federal credit. The effect of family size and income on credits can be seen at http://www.cbpp.org/images/cms//policybasics-eitc-f1-rev2-24-12.jpg.

A family with two children could, in 2012, get a maximum federal credit of $5,236. In 2009, the most recent year for which data is available, the federal EITC brought to South Carolina families $1.165 billion, an average of nearly $2,300 per return for over half a million low-income working families. Those taxpayers are spread across the state. In 2008, no SC House member had fewer than 1,403 taxpayers receiving the federal EITC or bringing less than $2.4 million into the district.

The EITC is generally considered the best anti-poverty measure we have in this country. It’s also good jobs policy. Still, South Carolina Rep. Tommy Stringer of Greenville, Chair of the S.C. House GOP Caucus’s Tax Study Committee, recently dismissed a state EITC: “It is bad tax policy to use the income tax system as a way to extend indirect welfare benefits but call it a ‘tax credit’.” But, it’s no more welfare than the home mortgage deduction or the untargeted business tax cuts proposed by Stringer’s study committee.

Wage and salary growth in the past decade has been especially slow at the bottom. Many low-wage jobs simply don’t pay enough to live on. A state EITC helps low-income families to cope with rising costs when no pay increases are available.  This is a credit that rewards low-wage families for working and has shown to increase job participation.  That jibes with our states newly announced pilot to force SNAP (food stamp) recipients to enter a jobs programs. The state and federal EITC also relieve pressure on low-wage employers, many in small businesses to raise wages.

A tax cut of $84 a year for middle and upper income families will simply disappear without real economic impact. Some will go into savings and some be spent in Vail. Research on federal EITC dollars show that they are either immediately put into the local economy or they are used for asset-building expenditures like education or paying off debt. A $524 refundable credit to a family with two kids could make a real difference.

At a time when the SC House purports to seek tax policies which drive economic development, they should look to a state EITC.  Typically states tie their EITC to the federal EITC because that simplifies administration.  Those costs usually run than 1 % according to a brief by the Center on Budget and Policy Priorities.

An EITC set at 10 % of the federal EITC would provide a credit of up to $524 in 2012 to a family with two children.  The price tag on a refundable EITC in South Carolina, according to an analysis by the Institute on Taxation and Economic Policy in D.C., would cost South Carolina about $118 million. That would be a far better investment than a small tax cut for better-off South Carolinians costing $77 million or a pointless general cut in tax rates for pass-through businesses costing $65 million when phased in.

In 1986, conservative icon Ronald Reagan described the federal Earned Income Tax Credit (EITC) as “… the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” South Carolina legislators who repeatedly declare themselves adherents of the former President should join with Rep. Gilda Cobb-Hunter, who has pushed  state EITC for years, and follow his lead to create a refundable state EITC in South Carolina.