AB 43: Personal income taxes: credit: earned income.
- Session Year: 2015-2016
- House: Assembly
- Latest Version Date: 2015-06-01
The Personal Income Tax Law allows various credits against the taxes imposed by that law, including certain credits that are allowed in modified conformity to credits allowed by federal income tax laws. Federal income tax laws allow a refundable earned income tax credit for certain low-income individuals who have earned income and who meet certain other requirements.
This bill, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, in modified conformity with federal income tax laws, would allow provide for an earned income credit to an eligible individual that is equal to specified unspecified percentages of the earned income tax credit allowed by federal law. The bill would provide law that would only be allowed in those taxable years in which an appropriation is made by the Legislature. The bill and would provide that in those years in which an appropriation is made by the Legislature, the credit would be refundable, as provided. The bill would also make findings and declarations.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law allows various credits against the taxes imposed by that law, including certain credits that are allowed in modified conformity to credits allowed by federal income tax laws. Federal income tax laws allow a refundable earned income tax credit for certain low-income individuals who have earned income and who meet certain other requirements.
This bill, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, in modified conformity with federal income tax laws, would allow an earned income credit to an eligible individual that is equal to specified percentages of the earned income tax credit allowed by federal law. The bill would provide that in those years in which an appropriation is made by the Legislature, the credit would be refundable. The bill would also make findings and declarations.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law allows various credits against the taxes imposed by that law, including certain credits that are allowed in modified conformity to credits allowed by federal income tax laws. Federal income tax laws allow a refundable earned income tax credit for certain low-income individuals who have earned income and who meet certain other requirements.
This bill, for taxable years beginning on or after January 1, 2016, in modified conformity with federal income tax laws, would allow an earned income credit to an eligible individual that is equal to specified percentages of the earned income tax credit allowed by federal law. The bill would provide that in those years in which an appropriation is made by the Legislature, the credit would be refundable. The bill would also make findings and declarations.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law allows various credits against the taxes imposed by that law, including certain credits that are allowed in modified conformity to credits allowed by federal income tax laws. Federal income tax laws allow a refundable earned income tax credit for certain low-income individuals who have earned income and who meet certain other requirements.
This bill, for taxable years beginning on or after January 1, 2016, in modified conformity with federal income tax laws, would allow an earned income credit to an eligible individual that is equal to specified percentages of the earned income tax credit allowed by federal law. The bill would provide that in those years in which an appropriation is made by the Legislature, the credit would be refundable. The bill would also make findings and declarations.
This bill would take effect immediately as a tax levy.
The Personal Income Tax Law authorizes various credits against the taxes imposed by that law. The federal Internal Revenue Code authorizes a refundable earned income tax credit for certain low-income individuals who have earned income and who meet certain other requirements.
This bill would state the intent of the Legislature to enact legislation that would create an refundable earned income tax credit for low-income individuals working in California. The bill would also make findings and declarations in this regard.
The Personal Income Tax Law authorizes various credits against the taxes imposed by that law. The federal Internal Revenue Code authorizes a refundable earned income tax credit for certain low-income individuals who have earned income and who meet certain other requirements.
This bill would state the intent of the Legislature to enact legislation that would create an refundable earned income tax credit for low-income individuals working in California. The bill would also make findings and declarations in this regard.
The Legislature finds and declares all of the following:
(a)In its Supplemental Poverty Measure report for the year 2013, released in October 2014, the United States Census Bureau reported Californias rate of poverty to be 23.4 percent. This rate is the highest among all 50 states.
(b)Using census data released in September 2014, the California Budget Project (CBP) reported that the economic recovery from the Great Recession has largely bypassed low- and middle-income Californians, with the bottom three-fifths of the income distribution experiencing stagnating income gains. This is contrasted with the top one-fifth of the income distribution experiencing gains of 52.4 percent.
(c)A briefing on poverty released by the CBP in August 2014 reports that 67 percent of families living in poverty were supported by one or more workers in 2012. Given that the majority of families living in poverty are working families in California, it is evident that poverty largely reflects low-paying jobs, not the absence of employment.
(d)In California, the Public Policy Institute of California (PPIC), in collaboration with the Stanford Center on Poverty and Inequality, has developed the California Poverty Measure (CPM), which underscores the role of Californias social safety net, amount which includes the CalFresh Program, CalWORKs, and the federal Earned Income Tax Credit (EITC), in mitigating poverty.
(e)Using data from 2011, a PPIC report on the CPM released in October 2013, reveals that 22 percent of Californians, 8.1 million people, lived in poverty. A comparison of CPM rates by county show that the three most populous counties, Los Angeles County, San Diego County, and Orange County, all had rates above the statewide CPM at 26.9 percent, 22.7 percent, and 24.3 percent, respectively.
(f)The CPM rate for children statewide for children, those under the age of 18, was 25.1 percent, the highest rate of any age group. This amounts to 2.3 million of Californias children living in poverty.
(g)Without need-based safety net programs and resources, over 30 percent of Californians would be living in poverty. According to the CPM, the absence of the safety net would increase the poverty rate among Californias children to 39 percent.
(h)Refundable tax credits, including the federal EITC, reduced the poverty rate in California by 3.2 percent overall. Among children, the poverty rate reduction was 6 percent. This means that 560,000 fewer children and 600,000 fewer working-age adults, 1.16 million people fewer in total, are living in poverty when refundable tax credits are accounted for in the CPM.
(i)According to the National Conference of State Legislatures, 25 states in the country and the District of Columbia, provide an EITC in addition to the federal EITC. California does not currently have a state EITC.
(j)A Brookings Institution report issued in January 2003, shows that in addition to boosting the family incomes of families in poverty, state EITC refunds served as an important economic stimulus for the communities and regions of the families by magnifying the impact of the federal EITC overall.
SEC. 2.Section 17052.1 is added to the Revenue and Taxation Code, to read:17052.1.For each taxable year beginning on or after January 1, 2016, and before January 1, 2021, there shall be allowed a credit against the net tax, as defined by Section 17039, for the taxable year, an amount determined in accordance with Section 32 of the Internal Revenue Code, as amended by Section 1002(a) of Public Law 111-5, as amended by Section 219(a)(2) of Public Law 111-226, as amended by Section 103(c) of Public Law 111-312, and as amended by Section 103(c) of Public Law 112-240, as amended by Section 206(a) of Public Law 113-295, relating to earned income, except as follows:
(a)(1)For an eligible individual who has at least one qualifying child under five years of age, the credit amount shall be equal to the federal earned income credit amount multiplied by 35 percent a percentage set forth in a bill related to the budget.
(2)For an eligible individual who does not have a qualifying child, the credit amount shall be equal to the federal earned income credit amount multiplied by 60 percent a percentage set forth in a bill related to the budget.
(3)For any other eligible individual who does not meet the requirements of paragraph (1) or (2), the credit amount shall be equal to the federal earned income credit amount multiplied by 15 percent a percentage set forth in a bill related to the budget.
(b)If the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall, upon appropriation by the Legislature, be refunded to the qualified taxpayer.
(c)Any amounts refunded to a taxpayer pursuant to this section shall not be included in income subject to tax under this part.
(d)Notwithstanding any other law, amounts refunded pursuant to this section shall be treated in the same manner as the federal earned income refund for the purpose of determining eligibility to receive benefits under Division 9 (commencing with Section 10000) of the Welfare and Institutions Code or amounts of those benefits.
(e)This section is notwithstanding Section 41.
(e)The credit provided by this section shall only be allowed in taxable years in which the Legislature provides for it in a bill related to the budget.
(f)This section shall remain in effect only until December 1, 2021, and as of that date is repealed.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
The Legislature finds and declares all of the following:
(a)In its Supplemental Poverty Measure report for the year 2013, released in October 2014, the United States Census Bureau reported Californias rate of poverty to be 23.4 percent. This rate is the highest among all 50 states.
(b)Using census data released in September 2014, the California Budget Project (CBP) reported that the economic recovery from the Great Recession has largely bypassed low- and middle-income Californians, with the bottom three-fifths of the income distribution experiencing stagnating income gains. This is contrasted with the top one-fifth of the income distribution experiencing gains of 52.4 percent.
(c)A briefing on poverty released by the CBP in August 2014 reports that 67 percent of families living in poverty were supported by one or more workers in 2012. Given that the majority of families living in poverty are working families in California, it is evident that poverty largely reflects low-paying jobs, not the absence of employment.
(d)In California, the Public Policy Institute of California (PPIC), in collaboration with the Stanford Center on Poverty and Inequality, has developed the California Poverty Measure (CPM), which underscores the role of Californias social safety net, amount which includes the CalFresh Program, CalWORKs, and the federal Earned Income Tax Credit (EITC), in mitigating poverty.
(e)Using data from 2011, a PPIC report on the CPM released in October 2013, reveals that 22 percent of Californians, 8.1 million people, lived in poverty. A comparison of CPM rates by county show that the three most populous counties, Los Angeles County, San Diego County, and Orange County, all had rates above the statewide CPM at 26.9 percent, 22.7 percent, and 24.3 percent, respectively.
(f)The CPM rate for children statewide for children, those under the age of 18, was 25.1 percent, the highest rate of any age group. This amounts to 2.3 million of Californias children living in poverty.
(g)Without need-based safety net programs and resources, over 30 percent of Californians would be living in poverty. According to the CPM, the absence of the safety net would increase the poverty rate among Californias children to 39 percent. percent.
(h)Refundable tax credits, including the federal EITC, reduced the poverty rate in California by 3.2 percent overall. Among children, the poverty rate reduction was 6 percent. This means that 560,000 fewer children and 600,000 fewer working-age adults, 1.16 million people fewer in total, are living in poverty when refundable tax credits are accounted for in the CPM.
(i)According to the National Conference of State Legislatures, 25 states in the country and the District of Columbia, provide an EITC in addition to the federal EITC. California does not currently have a state EITC.
(j)A Brookings Institution report issued in January 2003, shows that in addition to boosting the family incomes of families in poverty, state EITC refunds served as an important economic stimulus for the communities and regions of the families by magnifying the impact of the federal EITC overall.
SEC. 2.Section 17052.1 is added to the Revenue and Taxation Code, to read:17052.1.For each taxable year beginning on or after January 1, 2016, and before January 1, 2021, there shall be allowed a credit against the net tax, as defined by Section 17039, for the taxable year, an amount determined in accordance with Section 32 of the Internal Revenue Code, as amended by Section 1002(a) of Public Law 111-5, as amended by Section 219(a)(2) of Public Law 111-226, as amended by Section 103(c) of Public Law 111-312, and as amended by Section 103(c) of Public Law 112-240, as amended by Section 206(a) of Public Law 113-295, relating to earned income, except as follows:
(a)(1)For an eligible individual who has at least one qualifying child under five years of age, the credit amount shall be equal to the federal earned income credit amount multiplied by 35 percent.
(2)For an eligible individual who does not have a qualifying child, the credit amount shall be equal to the federal earned income credit amount multiplied by 60 percent.
(3)For any other eligible individual who does not meet the requirements of paragraph (1) or (2), the credit amount shall be equal to the federal earned income credit amount multiplied by 15 percent.
(b)If the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall, upon appropriation by the Legislature, be refunded to the qualified taxpayer.
(c)Any amounts refunded to a taxpayer pursuant to this section shall not be included in income subject to tax under this part.
(d)Notwithstanding any other law, amounts refunded pursuant to this section shall be treated in the same manner as the federal earned income refund for the purpose of determining eligibility to receive benefits under Division 9 (commencing with Section 10000) of the Welfare and Institutions Code or amounts of those benefits.
(e)This section is notwithstanding Section 41.
(f)This section shall remain in effect only until December 1, 2021, and as of that date is repealed.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
The Legislature finds and declares all of the following:
(a)In its Supplemental Poverty Measure report for the year 2013, released in October 2014, the United States Census Bureau reported Californias rate of poverty to be 23.4 percent. This rate is the highest among all 50 states.
(b)Using census data released in September 2014, the California Budget Project (CBP) reported that the economic recovery from the Great Recession has largely bypassed low- and middle-income Californians, with the bottom three-fifths of the income distribution experiencing stagnating income gains. This is contrasted with the top one-fifth of the income distribution experiencing gains of 52.4 percent.
(c)A briefing on poverty released by the CBP in August 2014 reports that 67 percent of families living in poverty were supported by one or more workers in 2012. Given that the majority of families living in poverty are working families in California, it is evident that poverty largely reflects low-paying jobs, not the absence of employment.
(d)In California, the Public Policy Institute of California (PPIC), in collaboration with the Stanford Center on Poverty and Inequality, has developed the California Poverty Measure (CPM), which underscores the role of Californias social safety net, amount which includes the CalFresh Program, CalWORKs, and the federal Earned Income Tax Credit (EITC), in mitigating poverty.
(e)Using data from 2011, a PPIC report on the CPM released in October 2013, reveals that 22 percent of Californians, 8.1 million people, lived in poverty. A comparison of CPM rates by county show that the three most populous counties, Los Angeles County, San Diego County, and Orange County, all had rates above the statewide CPM at 26.9 percent, 22.7 percent, and 24.3 percent, respectively.
(f)The CPM rate for children statewide for children, those under the age of 18, was 25.1 percent, the highest rate of any age group. This amounts to 2.3 million of Californias children living in poverty.
(g)Without need-based safety net programs and resources, over 30 percent of Californians would be living in poverty. The According to the CPM, the absence of the safety net would increase the poverty rate among Californias children to 39 percent according to the CPM.
(h)Refundable tax credits, including the federal EITC, reduced the poverty rate in California by 3.2 percent overall. Among children, the poverty rate reduction was 6 percent. This means that 560,000 fewer children and 600,000 fewer working-age adults, 1.16 million people fewer in total, are living in poverty when refundable tax credits are accounted for in the CPM.
(i)According to the National Conference of State Legislatures, 25 states in the country and the District of Columbia, provide an EITC in addition to the federal EITC. California does not currently have a state EITC.
(j)A Brookings Institution report issued in January 2003, shows that in addition to boosting the family incomes of families in poverty, state EITC refunds served as an important economic stimulus for the communities and regions of the families by magnifying the impact of the federal EITC overall.
SEC. 2.Section 17052.1 is added to the Revenue and Taxation Code, to read:17052.1.For each taxable year beginning on or after January 1, 2016, there shall be allowed a credit against the net tax, as defined by Section 17039, for the taxable year, an amount determined in accordance with Section 32 of the Internal Revenue Code, as amended by Section 1002(a) of Public Law 111-5, as amended by Section 219(a)(2) of Public Law 111-226, as amended by Section 103(c) of Public Law 111-312, and as amended by Section 103(c) of Public Law 112-240, as amended by Section 206(a) of Public Law 113-295, relating to earned income, except as follows:
(a)(1)For an eligible individual who has at least one qualifying child under five years of age, the credit amount shall be equal to the federal earned income credit amount multiplied by 35 percent.
(2)For an eligible individual who does not have a qualifying child, the credit amount shall be equal to the federal earned income credit amount multiplied by 60 percent.
(3)For any other eligible individual who does not meet the requirements of paragraph (1) or (2), the credit amount shall be equal to the federal earned income credit amount multiplied by 15 percent.
(b)If the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall, upon appropriation by the Legislature, be refunded to the qualified taxpayer.
(c)Any amounts refunded to a taxpayer pursuant to this section shall not be included in income subject to tax under this part.
(d)Notwithstanding any other law, amounts refunded pursuant to this section shall be treated in the same manner as the federal earned income refund for the purpose of determining eligibility to receive benefits under Division 9 (commencing with Section 10000) of the Welfare and Institutions Code or amounts of those benefits.
(e)This section is notwithstanding Section 41.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
HeadingLines 1, 6 and 7. DigestPage 1.(a)The Legislature finds and declares all of the following:
(1)
(a)In its Supplemental Poverty Measure report for the year 2013, released in October 2014, the United States Census Bureau reported Californias rate of poverty to be 23.4 percent. This rate is the highest among all 50 states.
(2)
(b)Using census data released in September 2014, the California Budget Project (CBP) reported that the economic recovery from the Great Recession has largely bypassed low- and middle-income Californians, with the bottom three-fifths of the income distribution experiencing stagnating income gains. This is contrasted with the top one-fifth of the income distribution experiencing gains of 52.4 percent.
(3)
(c)A briefing on poverty released by the CBP in August 2014 reports that 67 percent of families living in poverty were supported by one or more workers in 2012. Given that the majority of families living in poverty are working families in California, it is evident that poverty largely reflects low-paying jobs, not the absence of employment.
(4)
(d)In California, the Public Policy Institute of California (PPIC), in collaboration with the Stanford Center on Poverty and Inequality, has developed the California Poverty Measure (CPM), which underscores the role of Californias social safety net, amount which includes the CalFresh Program, CalWORKs, and the federal Earned Income Tax Credit (EITC), in mitigating poverty.
(5)
(e)Using data from 2011, a PPIC report on the CPM released in October 2013, reveals that 22 percent of Californians, 8.1 million people, lived in poverty. A comparison of CPM rates by county show that the three most populous counties, Los Angeles County, San Diego County, and Orange County, all had rates above the statewide CPM at 26.9 percent, 22.7 percent, and 24.3 percent, respectively.
(6)
(f)The CPM rate for children statewide for children, those under the age of 18, was 25.1 percent, the highest rate of any age group. This amounts to 2.3 million of Californias children living in poverty.
(7)
(g)Without need-based safety net programs and resources, over 30 percent of Californians would be living in poverty. The absence of the safety net would increase the poverty rate among Californias children to 39 percent according to the CPM.
(8)
(h)Refundable tax credits, including the federal EITC, reduced the poverty rate in California by 3.2 percent overall. Among children, the poverty rate reduction was 6 percent. This means that 560,000 fewer children and 600,000 fewer working-age adults, 1.16 million people fewer in total, are living in poverty when refundable tax credits are accounted for in the CPM.
(9)
(i)According to the National Conference of State Legislatures, 25 states in the country and the District of Columbia, provide an EITC in addition to the federal EITC. California does not currently have a state EITC.
(10)
(j)A Brookings Institution report issued in January 2003, shows that in addition to boosting the family incomes of families in poverty, state EITC refunds served as an important economic stimulus for the communities and regions of the families by magnifying the impact of the federal EITC overall.
(b)Based on these findings and declarations, it is the intent of the Legislature to enact legislation that would create an refundable earned income tax credit for low-income individuals working in California.
SEC. 2.Section 17052.1 is added to the Revenue and Taxation Code, to read:17052.1.For each taxable year beginning on or after January 1, 2016, there shall be allowed a credit against the net tax, as defined by Section 17039, for the taxable year, an amount determined in accordance with Section 32 of the Internal Revenue Code, as amended by Section 1002(a) of Public Law 111-5, as amended by Section 219(a)(2) of Public Law 111-226, as amended by Section 103(c) of Public Law 111-312, and as amended by Section 103(c) of Public Law 112-240, as amended by Section 206(a) of Public Law 113-295, relating to earned income, except as follows:
(a)(1)For an eligible individual who has at least one qualifying child under five years of age, the credit amount shall be equal to the federal earned income credit amount multiplied by 35 percent.
(2)For an eligible individual who does not have a qualifying child, the credit amount shall be equal to the federal earned income credit amount multiplied by 60 percent.
(3)For any other eligible individual who does not meet the requirements of paragraph (1) or (2), the credit amount shall be equal to the federal earned income credit amount multiplied by 15 percent.
(b)If the amount allowable as a credit under this section exceeds the tax liability computed under this part for the taxable year, the excess shall be credited against other amounts due, if any, and the balance, if any, shall, upon appropriation by the Legislature, be refunded to the qualified taxpayer.
(c)Any amounts refunded to a taxpayer pursuant to this section shall not be included in income subject to tax under this part.
(d)Notwithstanding any other law, amounts refunded pursuant to this section shall be treated in the same manner as the federal earned income refund for the purpose of determining eligibility to receive benefits under Division 9 (commencing with Section 10000) of the Welfare and Institutions Code or amounts of those benefits.
(e)This section is notwithstanding Section 41.
SEC. 3.This act provides for a tax levy within the meaning of Article IV of the Constitution and shall go into immediate effect.
(a)The Legislature finds and declares all of the following:
(1)In its Supplemental Poverty Measure report for the year 2013, released in October 2014, the United States Census Bureau reported Californias rate of poverty to be 23.4 percent. This rate is the highest among all 50 states.
(2)Using census data released in September 2014, the California Budget Project (CBP) reported that the economic recovery from the Great Recession has largely bypassed low-and middle-income Californians, with the bottom three-fifths of the income distribution experiencing stagnating income gains. This is contrasted with the top one-fifth of the income distribution experiencing gains of 52.4 percent.
(3)A briefing on poverty released by the CBP in August 2014 reports that 67 percent of families living in poverty were supported by one or more workers in 2012. Given that the majority of families living in poverty are working families in California, it is evident that poverty largely reflects low-paying jobs, not the absence of employment.
(4)In California, the Public Policy Institute of California (PPIC), in collaboration with the Stanford Center on Poverty and Inequality, has developed the California Poverty Measure (CPM), which underscores the role of Californias social safety net, amount which includes the CalFresh Program, CalWORKs, and the federal Earned Income Tax Credit (EITC), in mitigating poverty.
(5)Using data from 2011, a PPIC report on the CPM released in October 2013, reveals that 22 percent of Californians, 8.1 million people, lived in poverty. A comparison of CPM rates by county show that the three most populous counties, Los Angeles County, San Diego County, and Orange County, all had rates above the statewide CPM at 26.9 percent, 22.7 percent, and 24.3 percent, respectively.
(6)The CPM rate for children statewide for children, those under the age of 18, was 25.1 percent, the highest rate of any age group. This amounts to 2.3 million of Californias children living in poverty.
(7)Without need-based safety net programs and resources, over 30 percent of Californians would be living in poverty. The absence of the safety net would increase the poverty rate among Californias children to 39 percent according to the CPM.
(8)Refundable tax credits, including the federal EITC, reduced the poverty rate in California by 3.2 percent overall. Among children, the poverty rate reduction was 6 percent. This means that 560,000 fewer children and 600,000 fewer working-age adults, 1.16 million people fewer in total, are living in poverty when refundable tax credits are accounted for in the CPM.
(9)According to the National Conference of State Legislatures, 25 states in the country and the District of Columbia, provide an EITC in addition to the federal EITC. California does not currently have a state EITC.
(10)A Brookings Institution report issued in January 2003, shows that in addition to boosting the family incomes of families in poverty, state EITC refunds served as an important economic stimulus for the communities and regions of the families by magnifying the impact of the federal EITC overall.
(b)Based on these findings and declarations, it is the intent of the Legislature to enact legislation that would create an refundable earned income tax credit for low-income individuals working in California.
|
Date
|
Status
|
|---|---|
| May 27, 2015 | In committee: Set, first hearing. Referred to APPR. suspense file. |
| Aug 27, 2015 | In committee: Held under submission. |
| Aug 17, 2015 | In committee: Referred to APPR. suspense file. |
| Jul 8, 2015 | From committee: Do pass and re-refer to Com. on APPR. (Ayes 6. Noes 0.) (July 8). Re-referred to Com. on APPR. |
| Jun 30, 2015 | In committee: Set, first hearing. Hearing canceled at the request of author. |
| Jun 18, 2015 | Referred to Com. on GOV. & F. |
| Jun 3, 2015 | Read third time. Passed. Ordered to the Senate. (Ayes 69. Noes 3. Page 1859.) |
| Jun 3, 2015 | In Senate. Read first time. To Com. on RLS. for assignment. |
| Jun 2, 2015 | Read second time. Ordered to third reading. |
| Jun 1, 2015 | Read second time and amended. Ordered returned to second reading. |
| May 28, 2015 | Joint Rule 62(a), file notice suspended. (Page 1613.) |
| May 28, 2015 | Joint Rule 62(a), file notice suspended. |
| May 28, 2015 | From committee: Amend, and do pass as amended. (Ayes 12. Noes 0.) (May 28). |
| Dec 1, 2014 | Read first time. To print. |
| May 21, 2015 | Re-referred to Com. on APPR. |
| May 20, 2015 | Read second time and amended. |
| May 19, 2015 | From committee: Amend, and do pass as amended and re-refer to Com. on APPR. (Ayes 6. Noes 3.) (May 18). |
| May 18, 2015 | In committee: Set, first hearing. Referred to REV. & TAX. suspense file. |
| May 11, 2015 | In committee: Hearing postponed by committee. |
| Feb 17, 2015 | Measure version as amended on February 12 corrected. |
| Feb 13, 2015 | Re-referred to Com. on REV. & TAX. |
| Feb 12, 2015 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| Feb 5, 2015 | Re-referred to Com. on REV. & TAX. |
| Feb 4, 2015 | From committee chair, with author's amendments: Amend, and re-refer to Com. on REV. & TAX. Read second time and amended. |
| Feb 2, 2015 | Referred to Com. on REV. & TAX. |
| Dec 2, 2014 | From printer. May be heard in committee January 1. |
|
Date
|
Description
|
Location
|
Votes
|
|
|---|---|---|---|---|
| Aug 17, 2015 | Placed on suspense file | Senate Standing Committee on Appropriations |
Passed |
|
| Jul 8, 2015 | Do pass, but first be re-referred to the Committee on [Appropriations] | Senate Standing Committee on Governance and Finance |
Passed |
|
| Jun 3, 2015 | AB 43 STONE Assembly Third Reading | Assembly Floor |
Passed |
|
| May 28, 2015 | Do pass as amended. | Assembly Standing Committee on Appropriations |
Passed |
|
| May 18, 2015 | Do pass as amended and be re-referred to the Committee on [Appropriations] | Assembly Standing Committee on Revenue and Taxation |
Passed |
This list shows positions taken on this bill by organizations on the date displayed, which is linked to the original source.
Positions by individuals are not included.
|
Organization
|
Position
|
Date
|
|---|---|---|
| Alameda County Board of Supervisors | * Indeterminate | Jul 8, 2015 |
| Allen Temple Baptist Church | ** Support | Jun 3, 2015 |
| Alliance for African Assistance | ** Support | Jun 3, 2015 |
| American Federation of State, County and Municipal Employees | ** Support | Jun 3, 2015 |
| Amigos de Guadalupe Center for Justice & Empowerment | ** Support | Jun 3, 2015 |
| Asian Americans Advancing Justice | ** Support | Jun 3, 2015 |
| Brighter Beginnings | ** Support | Jun 3, 2015 |
| California Alternative Payment Program Association | ** Support | Jun 3, 2015 |
| California Association Of Food Banks | ** Support | Jun 3, 2015 |
| California Association Of Nonprofits | ** Support | Jun 3, 2015 |
| California Catholic Conference of Bishops | ** Support | Jun 3, 2015 |
| California Communities United Institute | ** Support | Jun 3, 2015 |
| California Food Policy Advocates | ** Support | Jun 3, 2015 |
| California Partnership | ** Support | Jun 3, 2015 |
| California Reinvestment Coalition | ** Support | Jun 3, 2015 |
| California Tax Reform Association | ** Support | Jun 3, 2015 |
| California Taxpayers' Association | ** Against | Jun 3, 2015 |
| Catholic Charities of Santa Clara County | ** Support | Jun 3, 2015 |
| Children'S Defense Fund | * Indeterminate | Jul 8, 2015 |
| Consumer Action | ** Support | Jun 3, 2015 |
| Contra Costa AFL-CIO Labor Council | ** Support | Jun 3, 2015 |
| Contra Costa County Board of Supervisors | ** Support | Jun 3, 2015 |
| Contra Costa's Family Economic Security Partnership | ** Support | Jun 3, 2015 |
| Cooperative Center Federal Credit Union | ** Support | Jun 3, 2015 |
| Council Of California Goodwill Industries | ** Support | Jun 3, 2015 |
| Council of Philippine American Organizations of San Diego | ** Support | Jun 3, 2015 |
| County of Santa Cruz Board of Supervisors | ** Support | Jun 3, 2015 |
| Earn | ** Support | Jun 3, 2015 |
| Housing California | * Indeterminate | Jul 8, 2015 |
| Jewish Family Services of Silicon Valley | ** Support | Jun 3, 2015 |
| Jewish Federation of Silicon Valley | ** Support | Jun 3, 2015 |
| Law Foundation of Silicon Valley | ** Support | Jun 3, 2015 |
| Legal Aid Association Of California | ** Support | Jun 3, 2015 |
| Monterey County Board of Supervisors | ** Support | Jun 3, 2015 |
| National Association of Social Workers | ** Support | Jun 3, 2015 |
| Northeast Community Federal Credit Union | ** Support | Jun 3, 2015 |
| Older Women's League Sacramento Capitol | ** Support | Jun 3, 2015 |
| Page M | ** Support | Jun 3, 2015 |
| Page N | ** Support | Jun 3, 2015 |
| Page O | ** Support | Jun 3, 2015 |
| Page P | ** Support | Jun 3, 2015 |
| Page Q | ** Support | Jun 3, 2015 |
| Policy Link | ** Support | Jun 3, 2015 |
| Puente | ** Support | Jun 3, 2015 |
| Samaritan House | ** Support | Jun 3, 2015 |
| San Cruz County Children's Network | ** Support | Jun 3, 2015 |
| San Francisco Community Empowerment Center | ** Support | Jun 3, 2015 |
| San Jose Silicon Valley Chamber of Commerce | ** Support | Jun 3, 2015 |
| san mateo county central labor council | ** Support | Jun 3, 2015 |
| Santa Clara County Board of Supervisors | ** Support | Jun 3, 2015 |
| Solano Children's Alliance | ** Support | Jun 3, 2015 |
| Somos Mayfair | ** Support | Jun 3, 2015 |
| Sonoma County Board of Supervisors | * Indeterminate | Jul 8, 2015 |
| St. Joseph's Family Center | ** Support | Jun 3, 2015 |
| Step Up Silicon Valley | ** Support | Jun 3, 2015 |
| United Way of Bay Area | ** Support | Jun 3, 2015 |
| United Way of Monterey County | ** Support | Jun 3, 2015 |
| United Way of Orange County | ** Support | Jun 3, 2015 |
| United Way of San Diego County | ** Support | Jun 3, 2015 |
| United Ways Of California | * Indeterminate | Jul 8, 2015 |
| Women's Building | ** Support | Jun 3, 2015 |
AB 43 (Mark Stone) Page 3 of 3
SENATE COMMITTEE ON APPROPRIATIONS
Senator Ricardo Lara, Chair
2015 - 2016 Regular Session
AB 43 (Mark Stone) - Personal income taxes: credit: earned income.
|
|
Version: June 1, 2015 |
Policy Vote: GOV. & F. 6 - 0 |
Urgency: No |
Mandate: No |
Hearing Date: August 17, 2015 |
Consultant: Robert Ingenito |
This bill meets the criteria for referral to the Suspense File.
Bill Summary:
AB 43 would create a second refundable Earned Income Tax Credit (EITC), equal to an unspecified percentage of the federal EITC.
Fiscal Impact:
The Franchise Tax Board (FTB) indicates that, primarily because the percentage of the bill is currently unspecified, it is unable to determine the costs to administer this bill. Because this bill would provide a refundable credit on a year-to-year basis, and could impact over three million California taxpayers who claimed the federal EITC, many of which have no current California income tax return filing requirement, the costs would likely be significant.
The unspecified percentage also precludes FTB from estimating the revenue loss resulting from the current version of the bill. As an order of magnitude, however, if the Legislature makes an appropriation in accordance with the 5/20/15 version of the bill FTB estimates an approximate annual revenue loss of $2 billion (General Fund).
Background:
Tax credits differ from other tax expenditures in that they directly reduce income tax liability, as opposed to indirectly by reducing taxable income. For instance, a one dollar credit reduces tax liability by one dollar, whereas a tax deduction of one dollar will reduce taxable income by one dollar, but reduces tax liability by the marginal tax rate. For example, an additional one dollar of deduction for a taxpayer in the 10 percent tax bracket reduces tax liability by 10 cents, while a taxpayer in the 39.6 percent tax bracket reduces tax liability by 39.6 cents.
The federal EITC was enacted in 1975. It was originally intended to be temporary in nature, to mitigate the impact of (1) the Social Security payroll tax, and (2) rising food and energy prices. Instead, the EITC was made permanent in 1978. The Tax Reform Act of 1986 indexed both the maximum earned income and phase-out income levels to inflation. The EITC differs from most other tax credits in that it is partially or fully refundable. A taxpayer with $100 in tax liability and $200 in a refundable tax credit would receive a tax refund of $100.
The EITC is considered both (1) an anti-poverty program and (2) an alternative to cash-transfer programs because it incentivizes work. The EITC is work-oriented in that the amount of the credit is based on earnings. The amount of the credit (which varies depending on the number of qualifying children in addition to earned income) initially rises as earnings increase, then reaches a plateau, and then falls as earnings increase further. For example, for a couple with two children in 2014, the credit is equal to 40 percent (the credit rate) of the first $13,700 in earnings. The maximum credit of $5,460 is received by taxpayers with earnings between $13,700 and $23,300. The credit phases out at a rate of 21.06 percent (that is, it is reduced by 21.06 cents for every additional dollar of earnings) for earnings over $23,300 and is zero for taxpayers with earnings over $43,950.
The value of the EITC has increased over time. For example, the maximum credit for a worker with three children has increased from $400 in 1978 (roughly $1,465 in 2014 dollars) to $6,143 in 2014.
Current state law provides that individuals with income below specified levels are not required to file a return, as the standard deduction and personal exemption credit eliminate any tax liability. For 2013, these thresholds are $12,838 in adjusted gross income for single filers, and $25,678 for married individuals filing jointly. These thresholds are increased based on the number of dependents claimed and are increased annually for inflation.
Federal law specifies that if the federal EITC is denied, and the Internal Revenue Service (IRS) determined that the taxpayer’s error was due to reckless or intentional disregard of EITC rules, the EITC would be denied for the next two years. If the error was due to fraud, the denial period would be ten years.
As part of the 2015-16 budget, the Governor signed SB 80 (Committee on Budget and Fiscal Review), which established a state EITC. The California EITC is identical to the Governor's EITC proposal included in the 2015 May Revison; it provides a refundable tax credit for wage income for households with income limits of $6,580 (zero dependents) up to $13,870 (three or more dependents). The credit matches 85 percent of the federal credits up to half of the federal phase-in range; and then begins to taper off relative to these maximum wage amounts. The tax credit is estimated to reduce revenues by $380 million annually beginning in 2015-16, and benefit an estimated 825,000 families. The estimated average household benefit is $460 per year, with a maximum credit of $2,653.
Proposed Law:
This bill would allow a refundable EITC, upon appropriation of the Legislature. In a year when an appropriation is not made by the Legislature, the credit becomes nonrefundable. The credit is computed by multiplying the federal credit amount due by the state credit percentage. The state credit percentage is 0 percent, unless the Legislature provides a percentage in a bill related to the budget.
The bill identifies three categories of taxpayers: (1) an individual who has at least one qualifying child under five years of age, (2) an individual who does not have a qualifying child, and (3) an individual who does not meet the above requirements.
The bill provides that amounts refunded to a taxpayer shall not be included in income subject to tax, and, notwithstanding any other state law, and to the extent permitted by federal law, amounts refunded shall be treated the same as the federal credit for purposes of determining eligibility for benefits.
It would take effect immediately as a tax levy, and apply to taxable years 2016 through 2020.
Related Legislation:
SB 80 (Committee on Budget and Fiscal Review, Chapter 21, Statutes of 2015), created a refundable CA EITC for taxable years beginning on or after January 1, 2015.
Staff Comments:
FTB estimates that the state’s current EITC will impact less than one million individuals. Administrative costs are estimated to be $22 million in 2015-16, $11.6 million in 2016-17, and $10.1 million annually thereafter.
-- END --
AB 43 (Mark Stone) 6/1/15 Page 4 of 4
SENATE COMMITTEE ON GOVERNANCE AND FINANCE
Senator Robert M.Hertzberg, Chair
2015 - 2016 Regular
Bill No: |
AB 43 |
Hearing Date: |
7/8/15 |
Author: |
Mark Stone |
Tax Levy: |
No |
Version: |
6/1/15 |
Fiscal: |
Yes |
Consultant: |
Bouaziz |
||
PERSONAL INCOME TAXES: CREDIT: EARNED INCOME
Allows a refundable earned income tax credit, upon appropriation of the Legislature.
Background and Existing Law
Federal law allows eligible individuals a refundable earned income tax credit (EITC), which allows the taxpayer to obtain a refund for the excess of the credit over the taxpayer’s liability. As the name implies, the credit is based on a percentage of the taxpayer's earned income, and phases out as income increases. The percentage varies depending on whether the taxpayer has qualifying children. Married individuals are eligible for only one credit on their combined earned income and must file a joint return to claim the credit.
Federal law specifies that if the federal EITC is denied, and the Internal Revenue Service (IRS) determined that the taxpayer’s error was due to reckless or intentional disregard of EITC rules, the EITC would be denied for the next two years. If the error was due to fraud, the denial period would be ten years.
On June 23, 2015, Governor Brown signed SB 80 (Committee on Budget and Fiscal Review), which established a state EITC. The California EITC is identical to the Governor's EITC proposal included in the May Revise. The state EITC is a refundable credit, available to individuals earning less than $6,580, and households with children earning less than $13,870. The state credit is computed by multiplying the state credit amount (The state credit amount is determined by multiplying W2 wage earnings by the appropriate percentage. The appropriate percentage is determined by the total W2 wages and the number of children an individual has) by the state adjustment factor. The state adjustment factor is 0%, unless otherwise specified in the annual Budget Act. The state EITC is available to taxpayers beginning January 1, 2015, and for taxable year 2015, the EITC adjustment factor in the Budget Act is 85%. The state EITC excludes self-employment income.
Proposed Law
Assembly Bill 43 allows a refundable earned income tax credit, upon appropriation of the Legislature. In a year when an appropriation is not made by the Legislature, the credit becomes nonrefundable. The credit is computed by multiplying the federal credit amount due by the state credit percentage. The state credit percentage is 0%, unless the Legislature provides a percentage in a bill related to the budget.
The bill identifies three categories of taxpayers:
An individual who has at least one qualifying child under five years of age.
An individual who does not have a qualifying child.
An individual who does not meet the above requirements.
AB 43 provides that amounts refunded to a taxpayer shall not be included in income subject to tax, and, notwithstanding any other state law, and to the extent permitted by federal law, amounts refunded shall be treated the same as the federal credit for purposes of determining eligibility for benefits.
The bill makes legislative findings and declarations.
AB 43 takes effect immediately as a tax levy, and applies to taxable years beginning on or after January 1, 2016, and before January 1, 2021.
State Revenue Impact
If the Legislature makes an appropriation in accordance with the 5/20/15 version of AB 43, the Franchise Tax Board (FTB) estimates an approximate annual revenue loss of $2 billion.
Comments
1. Purpose of the bill. According to the author, “AB 43 addresses the lack of income gains for working Californians in the Post-Great Recession economic recovery while simultaneously providing a much-needed economic stimulus in the most economically distressed communities. This bill establishes a framework for a refundable California Earned Income Tax Credit (EITC) for working low- and middle-class families. AB 43 places an emphasis on three cohorts of filers: (1) households with at least one child under five, (2) childless households, and (3) the remainder of Federally eligible households. Overall, this policy compliments, magnifies, and extends the impact and reach of the current state EITC.
Researchers cite the federal EITC as among the most effective tools for reducing poverty across the nation. Without it, child poverty is estimated to be 25% higher. As the California Budget Project points out, for children, the federal EITC results in improved health and education outcomes that translate into higher incomes in adulthood. Studies focused on state EITCs adopted in other states have estimated that each additional dollar received by a tax filer can generate a further $1.50-2.00 in local economic activity. The impact of the increased purchasing power in communities benefited by federal and state EITC dollars is undeniable.
In its analysis of policy options for economic and employment growth during 2010, the Congressional Budget Office highlights that the best options to foment growth are those that assist households by spurring demand for goods and services. Therefore, the type of tax credit provided by AB 43, which targets lower income households with fewer assets, would have a larger impact on consumer spending, in comparison with tax cuts aimed at higher income households. By putting forward the framework established in AB 43, we provide a flexible policy frame that allows us to have the best economic impact to the neediest households in our most depressed communities.”
2. Why now? It is unclear why this bill is necessary, given a state EITC was enacted less than one month ago. Although AB 43 does not take effect until January 1, 2016, that only allows for one year of implementation time for the current EITC, which is not enough time to show the effectiveness the state EITC has on combating poverty in California.
3. A Note on Fraud. Although the federal EITC lifts families and individuals out of poverty, the refundable credit is highly susceptible to fraud. The Treasury Inspector General for Tax Administration estimates that improper EITC claims total over $10 billion a year. The payments paid out improperly for 2012 were at least 21-25% of all payments, according to the latest report from the IRS inspector general. SB 80 accounts for this by limiting the state EITC to wage income.
4. Another way? As stated in AB 43’s legislative findings, the federal EITC is a proven antipoverty measure, but there are other programs we can invest in to help working families. The state can invest in increasing TANF grants, increase CalWORKs childcare, and increase funding for food stamps, to name a few.
5. Let’s get clear. AB 43 lays out the framework for a California EITC, but leaves out many critical details needed to implement the credit. For example, the credit is refundable upon appropriation of the legislature, thus if there is no appropriation in the first two years, but an appropriation in the third, can individuals who would have received a refund amend their last two returns? Would individuals who are amending returns be entitled to payment first or would FTB prioritize individuals filing original returns? The simple solution would be to amend the bill to include a continuous appropriation; however this would likely result in the bill requiring a 2/3 vote for passage. The Committee may wish to consider amending the bill to clarify the mechanics of who is eligible for a refund when an appropriation is made by the Legislature.
6. Related legislation. Originally, SB 38 (Liu) created a refundable EITC equal to 15 or 100 percent of the federal EITC. The bill was amended in the Senate Appropriations Committee, and now creates a refundable EITC identical to the current state EITC. The bill is in the Assembly Revenue and Taxation Committee. SB 152 (Vidak) creates a refundable EITC equal to 15 percent of the federal EITC. SB 152 was held on the Senate Appropriations Committee’s suspense file. The Committee approved both bills on April 29, 2015.
Assembly Revenue and Taxation 6-3
Assembly Appropriations 12-0
Assembly Floor 69-3
Support and Opposition
(6/17/15)
Support: 9 to 5 California; Alameda County Board of Supervisors; Allen Temple Baptist Church; Alliance for African Assistance; Alliance of Californians for Community Empowerment; American Association of University Women; American Federation of State, County and Municipal Employees; Amigos de Guadalupe Center for Justice & Empowerment; Arrowhead United Way; Asian Americans Advancing Justice; Brighter Beginnings; California Alternative Payment Program Association ; California Association of Food Banks; California Association of Nonprofits; California Catholic Conference of Bishops; California Communities United Institute; California Employer Law Center; California Equity Leaders Network; California Food Policy Advocates; California Partnership; California Reinvestment Coalition; California Tax Reform Association; California Women’s Law Center; California Work and Family Coalition; Career Ladders Project; Catholic Charities of Santa Clara County; Center for Popular Democracy; Child Care Law Center; Children’s Defense Fund; Children’s Partnership; Community Child Care Council of Alameda County; Consumer Action; Contra Costa AFL-CIO Labor Council; Contra Costa County Board of Supervisors; Contra Costa's Family Economic Security Partnership; Cooperative Center Federal Credit Union; Council of California Goodwill Industries ; Council of Philippine American Organizations of San Diego; County of Santa Cruz Board of Supervisors; County Welfare Directors Association; Courage Campaign; EARN; Equal Rights Advocates; Family Economic Security Partnership; First 5 of Monterey County; First 5 of Santa Clara County; First 5 Santa Cruz County; Housing California; Jewish Family Services of Silicon Valley; Jewish Federation of Silicon Valley; Law Foundation of Silicon Valley; Legal Aid Association of California; Monterey County Board of Supervisors ; Mujeres Unidas y Activas; Napa County Board of Supervisors; National Association of Social Workers, California Chapter; National Council of Jewish Women; National Domestic Workers Alliance; Next Generation; Northeast Community Federal Credit Union; Older Women's League Sacramento Capitol; Parent Voices; Policy Link; Puente; Raising California Together; Samaritan House; San Francisco Community Empowerment Center; San Jose Silicon Valley Chamber of Commerce; San Mateo County Central Labor Council; Santa Cruz County Board of Supervisors; Santa Cruz County Children’s Network; Santa Clara County Board of Supervisors; Solano Children’s Alliance; Somos Mayfair; St. Joseph's Family Center; Stronger California Advocates Network; Step Up Silicon Valley; Traders Women Inc.; Ultra Violet; United Way of Arrowhead; United Way of California; United Way of Fresno County; United Way of Monterey County; United Way of Orange County; United Way of San Diego County; United Way of Santa Barbara County; United Way of Santa Cruz County; United Way of Silicon Valley; United Way of Stanislaus County; United Way of the Bay Area; United Way of Wine Country; Ventura County Board of Supervisors; Western Center on Law & Poverty; Women's Building; 1 individual.
Opposition: California Taxpayers Association
-- END --
AB 43
Page 3
Date of Hearing: May 27, 2015
ASSEMBLY COMMITTEE ON APPROPRIATIONS
Jimmy Gomez, Chair
AB 43
(Mark Stone) – As Amended May 20, 2015
Policy Committee: |
Revenue and Taxation |
Vote: |
6 - 3 |
Urgency: Yes State Mandated Local Program: No Reimbursable: No
SUMMARY:
This bill creates a state earned income tax credit (EITC), under the personal income tax law, in modified conformity with the federal credit, for taxable years beginning on or after January 1, 2016, and before January 1, 2021, and provides that, in those years in which an appropriation is made by the Legislature, the credit will be refundable. The bill establishes the following credit amounts:
1) 35% of the federal EITC amount for taxpayers who have at least one qualifying child less than 5 years of age;
2) 60% of the federal EITC amount for taxpayers without a qualifying child; and
3) 15% of the federal EITC amount for taxpayers who have a child 5 years of age or older.
The bill specifies that amounts refunded under the credit are not included in income subject to tax, and notwithstanding any other state law, amounts refunded will be treated the same as federal EITC amounts for purposes of determining public benefits eligibility.
FISCAL EFFECT:
1) Potentially significant GF costs to Franchise Tax Board (FTB) to administer the changes to forms and systems.
2) Estimated GF revenue decreases of $380 million, $1.9 billion, and $2.0 billion in FY 2015-16, FY 2016-17, and FY 2017-18, respectively, assuming appropriation is made by the Legislature to provide a refundable credit. Estimated GF revenue decreases of $38 million, $190 million, and $200 million for those fiscal years, respectively, if no appropriation is made to provide a refundable credit.
COMMENTS:
1) Purpose. According to the author, the EITC addresses stagnant income for working Californians in the post-recession economic recovery while simultaneously providing stimulus in the most economically distressed communities. The EITC is a refundable tax credit targeted at low-income working households, designed to reduce poverty and reward work. The author asserts the federal EITC is an effective anti-poverty tool, and without it, child poverty would be as much as 25% higher. According to the California Budget Project, the federal EITC results in improved health and education outcomes for children that translate into higher incomes in adulthood.
2) EITC Basics. The EITC is a tax credit for low-income individuals and families designed to augment incomes and provide an incentive for people to work more and earn higher wages. When the credit exceeds the amount of taxes owed, it results in a cash refund to claimants, eliminating all tax and increasing realized income. As a taxpayer's income increases, the EITC increases up to a maximum benefit level, and then phases out. The amount of federal credit depends on the number of children in the taxpayer's household, with significantly more credit available for taxpayers with one or more children.
By providing a tax credit based on earned income, the EITC encourages people to enter the workforce and rewards additional work by providing a larger credit as worker's wages increase. For example, a single taxpayer with two children earning $7,500 in 2014 is eligible for a $3,000 federal credit. However, if that taxpayer earned twice that amount, the credit increases to $5,460. Proponents believe the federal EITC has raised labor force participation rates among single mothers by at least 7%, and accounted for as much as 75% of all employment gains for single mothers with one child between 1991 and 2000.
In addition to income and labor force participation gains, supporters claim the federal EITC has been associated with better academic performance among low-income children, higher completion rates among high school and college students, and significant offset income for inherently regressive state and local taxes such as sales and use tax.
3) Individual Help, Collective Stimulus. Supporters argue the federal EITC helped elevate 1.3 million people above the federal poverty line in California from 2010 to 2012, and note 25 other states have established their own EITC to augment the impact of the federal program. According to a 2010 analysis from the Congressional Budget Office, the most effective stimulus programs are those that encourage additional consumption and demand for goods. Programs that target lower income households with fewer assets tend to have an immediate, significant impact on consumer spending. Supporters believe each dollar distributed to EITC claimants generates between $1.50-2.00 in additional, local economic activity through increased purchasing power.
4) Governor's Proposal. The Governor's May Revise included another version of a state EITC. The Governor's proposal would also be refundable, but targets the state's lowest income taxpayers, available only to individuals earning less than $6,580 and households with children earning less than $13,870. The Governor's proposal effectively increases the incentive for very low income taxpayers and unemployed persons to enter the workforce, but quickly phases out the benefit as those taxpayers' income increases and they become eligible for a greater federal EITC. The proposal also excludes self-employment income in order to minimize potential fraud (see comment 6 below).
The Legislative Analyst's Office believes the annual costs for the Governor's EITC proposal are approximately $400 million.
5) Knowing Is Half The Battle. According to the Legislative Analyst's Office, only 71% of EITC eligible tax filers in California even claim the credit, often because they are unaware they are eligible. This failure results in the annual loss of hundreds of millions of federal dollars that would directly help low-income families and provide additional economic stimulus. AB 43 makes no investment, and the Governor's plan makes a very modest investment (about $600,000) in education and outreach to improve EITC claims. The committee may wish to consider whether additional investments in education ought to be pursued as a cost-effective manner to increase EITC claims and capture additional federal subsidies.
6) EITC Rate Comparison. The chart below highlights the maximum credit available for various individual taxpayers in each of the 2014 federal EITC, this bill's EITC, and the Governor's EITC. For joint filers, the maximum credit amounts do not change, but are available over a broader range, though far less than double, the individual income amounts. Note that the state proposals augment, and do not replace, the federal EITC, and that the EITC proposed in AB 43 is not incompatible with the Governor's proposal, but could be adopted alongside it as each proposal targets different recipients.
HOUSEHOLD SIZE |
Maximum Credit Amount Maximum income at which maximum credit available Endpoint of credit phase-out |
||
FEDERAL |
AB 43 |
GOV'S BUDGET |
|
No dependents |
496 8,110 14,590
|
298 8,110 14,590 |
214 3,290 6,580 |
1 dependent | 5 yrs or older* |
3,305 | 3,305 17,830 38,511
|
1,157 | 496 17,830 38,511 |
1,428 | 1,428 4,940 9,880 |
2 dependents | 5 yrs or older* |
5,460 | 5,460 17,830 43,756
|
1,911 | 819 17,830 43,756 |
2,358 | 2,358 6,935 13,870 |
3+ dependents | 5 yrs or older* |
6,143 | 6,143 17,830 46,997
|
2,150 | 921 17,830 46,997 |
2,653 | 2,653 6,935 13,870 |
* Distinction for children 5 years of age or older is a feature of AB 43 only. |
|||
7) High Rate of Fraud. As is often true with refundable credits, the EITC is susceptible to a high rate of fraudulent claims. According to a 2014 report by the US Treasury's Inspector General for Tax Administration, the IRS estimates that 24% of federal EITC payments during the 2013-14 fiscal year, amounting to $14.5 billion, were in error. Often these funds are not recoverable as the recipient does not typically have the resources to repay erroneous claims and penalties. Many fraudulent EITC claims involve identity theft. As a result, both the IRS and FTB could potentially limit this fraud through more robust and secure filing processes. Another common source of fraudulent EITC claims is from self-employed taxpayers whose income cannot easily be verified or audited. The Governor's EITC proposal, discussed above, excludes self-employment income in order to minimize this problem.
Analysis Prepared by: Joel Tashjian / APPR. / (916) 319-2081
Discussed in Hearing
43SEC
Senate Standing Committee on Appropriations
16MIN
Senate Standing Committee on Governance and Finance
11MIN
