Tax Day: Money Experts Examine Proposed California Earned Income Tax Credit

This is Midday Edition I'm Maureen Cavanaugh. It's Wednesday, April 15. Top story -- it's all about the income today. San Diego and are scrambling to get there in to contact info for the deadline and others are taking to the streets rally for a higher income. The fight for 15 movement is a national strike of fast food and other low-wage workers who want to get the minimum wage boosted to $15 an hour. KPBS footer Meagan Burks is at a rally in downtown San Diego. Hello. ________________________________________ Hello. ________________________________________ What's going on? ________________________________________ There are about 100 demonstrators that had gathered to date and they marched from the towers -- this is where Dianne Feinstein has an office and they marched to the Civic Center into the state building here in downtown -- they are chanting things like asking for $15 an hour in the minimum wage. In some places they have blocked the street but it is pretty common. Their officers helping to control traffic. ________________________________________ I saw some pictures of the people attending the rally. Were they all wearing red shirts with something on them? ________________________________________ Is quite a mix of people. It's a growing campaign. It used to be mostly fast food workers but this is the first time that security officers and state workers and janitors have joined the cause and you have representatives from the United service workers West and employees international Union and all sorts of different industries. ________________________________________ It's my understanding there are other rallies planted today. Is that right? ________________________________________ Yes. This is part of an international day of protest. Here in San Diego that I miss traders started at 7 AM at the McDonald's on University Avenue and then the Northpark sonic drive-through. They are here through the want to clock our downtown and they will go to city Heights and people will gather at SDS you -- homecare workers and representation of multiple industries around 4:30 today. ________________________________________ That is Meagan Burks. Thanks so much. ________________________________________ Most economists agree that a growing disparity is not healthy for the US economy in the long term. But they are not in agreement on the best way to address a iterations worth of stagnant wages and increase in low wage jobs. Joining me to talk about this is Richard Barrera, CEO of the San Diego and Imperial County labor Council. Welcome. ________________________________________ Thank you. ________________________________________ Eric approval is the president of the Institute for policy research. Good to be back. ________________________________________ Richard we have heard that most jobs created in San Diego are in low-wage industries like prism and hospitality. How difficult is it for the workers to make ends meet wax ________________________________________ If you look at the recent data that the Center on policy initiatives have done, 4/10 families in the community don't earn enough to make ends meet. In other words, they can pay for the basics -- housing, food, child care. That means families month to month don't know if they will be evicted from their apartment they don't know if there will be enough food on the table. That is a reality for a huge percentage of the families because the jobs that they work at don't pay enough for them to support their families. ________________________________________ We should, a report by UC Berkeley said a large number of low-wage workers rely on public assistance. ________________________________________ Is that true here? ________________________________________ Absolutely. It's especially true in California. What happens, then, if the employer is not taking on the responsibility to pay a living wage, first, workers are struggling and going without and facing real challenges. But the taxpayers pick up the bill. That is a higher percentage of folks on Medi-Cal that are getting food stamps and other forms of public assistance. This means all of us -- workers and taxpayers are taking on the burden created from lawyers not doing what they need to be doing. ________________________________________ Erika, you've talked about that sort of shift and responsibility. How does that affect the overall economy? ________________________________________ Sure. Richard is right. I've question were it is the employers are the labor market at large but yes, we have created -- the challenge in the postindustrial service economy is that we have created a lot of jobs which pay a relatively low amount and to provide additional income support we've got a bevy of social safety net programs. We argue whether there are enough or too much of the social safety nets but to allow people to -- as [indiscernible] said -- to make ends meet we have programs that we need to fill in the lack of quality jobs in the labor market. ________________________________________ Therefore, taxpayers and are subsidizing these jobs. ________________________________________ The one thing I would say -- it is a characteristic of modern Western economies. Again, people argue about the size and strength of the safety net, but in a lot of postindustrial service economies we've got social transfer programs that use tax resources to provide benefits to people at the lower spectrum of the wage gap. ________________________________________ The California budget and policy center which does nonpartisan analyses on how budget and tax policies affect Boeing middle income Californians are out with a new report called pays taxes in California -- a very timely report. Stephen Bliss is with the California budget center and joins us. Welcome. ________________________________________ Got to be here. ________________________________________ Your report found that with all the families in California -- low income families pay the largest share of their income in taxes. What kinds of taxes are we talking about? ________________________________________ That includes all kinds of taxes. No category or major category that is excluded from that analysis. What we do in this report is we look at data that the Institute for taxation and economic policy on the East Coast provides. They do the number crunching and we take a look at what it means for California. It is an important way of looking at taxes in the state because obviously right around April 15 focus is on the rush to get taxes filed and the idea of taxes as something paid into the system, largely income tax. As Californians we have a stake in having a very strong system of state and local taxes and we try to do -- we try to put out a report to look at what the system looks like and how different families across the distribution are contributing into the effort we make as a state to fund critical public systems and services -- everything from K-12 to higher and Ambrose -- roads and bridges. ________________________________________ You are talking about sales taxes and property tax? ________________________________________ That's exactly right. Property in sales and income tax. Because in California we have the progressive income tax, that is to say that higher income families pay a higher marginal rate or higher rate on their incomes, there is a common misperception that overall state and local taxes in California are more heavily weighted toward upper income individuals. Our analysis tries to look at the whole picture of taxes -- not just income tax but also sales tax, property tax, and general amount of taxes that families pay into the state a local system. What we find her again counter to the general impression that it's the upper income families paying the most, it's actually the bottom 1/5 of California Emily's in terms of income -- to put real terms on that -- is a families making on average 14,000 per year. Anyone would realize this is barely enough to get by. Especially in a high-cost County like San Diego. The bottom 1/5 is paying 10.5% of their income in state or local taxes. In contrast, -- and I should say that is the highest share of any income group. ________________________________________ Let me stop you for a minute. I wanted to ask Eric a question. When we do look simply at state income tax, it is also really out of whack. The people that are the wealthiest Californians -- the 10% of households of the wealthiest Californians are paying 80% of the California's personal income tax. We have a system where the highest family burden of all taxes hit the lowest income earners in California. Then 10% of the wealthiest Californians are paying the 80% of the income tax -- how did that this system develop that seems out of whack? ________________________________________ Somebody really wanted to screw up California -- they would've put our tax system in place and they did a great job. As you say you have an interesting dynamic for you got on April 15 a highly progressive income tax -- something that people have a visceral feel for and they note it is highly progressive. The excise and sales taxes are paid throughout the year and they are largely hidden and there are incidents that are hidden from taxpayers that is done on a daily basis. That is highly regressive and hits people at the lower income bands and the hardest and the greatest impact. It has some pernicious effects at the state level. One thing that we see is that the state has the booms and busts in terms of revenue does of how much it relies upon upper income earners and how much the upper income earners fluctuates year-to-year based upon things like the stock market and what have you. ________________________________________ Then you've got local government funded by these sales taxes and that is even score your because it incentivizes the local government to chase the big-box retailers and of the things that generate sales tax but not necessarily rate jobs and benefits. One thing and there is discussion at the state level -- we need to really rethink our state tax system and try to create one that is less onerous on lower income Californians struggling to make ends meet. But that also removes the volatility and the boom and bust in the places where we needed to have government at the state level makes strategic long-term investments for the state's future. ________________________________________ Stephen Bliss the California budget and policy center proposed an idea. You proposed creating a state earned income tax credit. We have a federal earned income tax credit that this would be California's. Help low-wage workers make ends meet. How would that work? ________________________________________ As you say, it would be based off of the Federal credit. There is a federal credit in place. The key thing to know about this proposal in California is that like the federal EIT see the basic premise is to make work pay and health middle and low income families make ends meet. A number of guest says spoken about the challenges that the family space particular in California was so many high-cost areas. So by the fact that a state would build on extending the federal credit means it is working off of EITC a federal credit that already works. In fact the federal credit is bound to be one of the most successful ways of helping families escape poverty and move up the income ladder. So, the way it works -- in short, based on income or the number of children you have, families can claim a federal of about 15%. EITC Basically, it's a refundable credit. Based on their income they get a certain percentage that is refundable key because even if your income is low and you don't pay income tax you still get a credit because there is a refund. ________________________________________ Yes. ________________________________________ California proposals -- there are 2 in the legislature -- actually use the same eligibility credit so there is no reinventing the wheel -- and answer on state credit that extends the federal credit. The same type of family but it makes the credit even larger and in so doing California were join about half the other states and the District of Columbia better taken the step toward helping to make work pay. ________________________________________ Let me get the input from Richard. What you think about that? ________________________________________ The earned income tax credit at the federal level has been the most effective public policy tool to help fight poverty over the last several decades. Extending that to the state level is something that we would want to support. The question becomes how do you pay for it? And for efforts to expand the federal earned income tax credit have bogged down is the president -- the president wants to expand the tax credit and pay for it by asking people at the top in the large corporations to pay more of their fair share of the tax burden and a block it. So you've got the Republicans in Congress blocking the expansion of the rate typically the same EITC business group that come together to oppose public policy also end up being the ones that get in the way of expansion of income tax credit because somebody has to pay for it. Before it with you revenue, then at the state level it is coming out of school or other services that are important for families. So, we believe that the earned income tax credit is good public policy and we also believe that people of the top have to pay their fair share. Maureen, but I would add is that this is really a question of makes decisions in our community. Unfortunately, whether it is in the individual workplace or whether it's in public policy, we've seen a dramatic shift of wealth going to people at the very top. And when you see that kind of shift in wealth you also see a shift in political power. We know there are people -- the code brothers and others are determined to advance public policy that protects the share of wealth at the top. One of the main points of the rally today both in San Diego and throughout the country is that workers want a higher wage and they also want the ability to form strong unions so they can come together as equals and sit across the bargaining table from people that have too much economic and political power now in negotiate a more just situation. ________________________________________ Eric, are you, like many economists who a bit on the program think that actually and earned income credit does more to lift people out of poverty than an increase in the minimum wage? ________________________________________ Absolutely. There are a couple of reasons. Let's get the numbers straight -- wandered 42,000 San Diego and -- San Dieagan qualified and they got about $2200 each for that tax credit. It has ________________________________________ Attributes that make it a great poverty fighting tool and better than minimum wage. First it is targeted. We make sure that the people getting the end of it are really the families struggling. Absolutely Richard is right that low income earners are going to get the bulk of the minimum wage increase. But, in our County there are about 30% of families that have a low-wage worker -- the family makes more than 60,000 and 40,000 the family makes more than 100,000 -- a second order or kit. So the will focus the benefit. The second thing EITC is that it is a de facto savings program. One thing we know about a working family and the challenges they have is that there are unexpected things that come up. By having the lump sum paid out at the time of filing you get an opportunity to pay down the debts or take care of the needs up crop up unexpectedly. ________________________________________ This is a big conversation. We will return to this. I wanted to thank you all for talking to us on tax day. Giving us context when we have to write out the checks. Richard Barrera of the labor Council and Eric Beth Accomando the system for policy research and Stephen Bliss with the California policy and budget center. Thank you very much.