Where credit's due

Restoring the earned income tax credit would boost low-income families

When the Legislature ended Oklahoma’s Earned Income Tax Credit (EITC) refundability in 2016, they reduced an essential tax benefit for over 200,000 Oklahoma families. Prior to that change, if the amount a family received from the EITC was larger than the amount of state income tax they owed, that family got the difference as a refund. Now, families can claim the credit only up to the amount they owe in state income taxes. Families use these refunds to meet basic needs like food and housing, and to pay off traffic tickets, court costs and other debts. By ending refundability, we’ve raised taxes—as much as $279—on those who can least afford it: low-income parents raising children. 

It is time for Oklahoma to restore our EITC in the next legislative session. After that important first step, we can begin plans to increase the amount of the Oklahoma EITC.

Low-income Oklahomans benefit LESS from the state EITC than in most other states

Of the 42 states with income taxes, two-thirds (29) have EITCs. The federal government created the first EITC. As states added their own credits, most states made them a fixed percentage of the federal one. Oklahoma’s EITC is 5 percent of the federal credit. Only Montana has a lower credit than Oklahoma. We are one of just four states where the credit is not refundable, and the other three of those states have credits that are four to six times larger than Oklahoma’s. Simply raising Oklahoma’s EITC to the typical national level would return an additional $433 to a married couple with a child making just under $20,000, and about $300 to other families with children.

Oklahoma’s low-income families face the same struggles as those in other states. They deserve the same generosity here that they would get in South Carolina, Illinois, or any of the 23 other states which have more valuable credits than Oklahoma. This year, six more states expanded their EITCs. All but one of these states had a credit larger than Oklahoma’s before this round of increases. 

For low-income Oklahomans, Oklahoma is not a low-tax state

Oklahoma has the fifth-highest taxes for the lowest 20 percent of earners, according to the Institute for Tax and Economic Policy (ITEP). The average low-income household in this group (earning $12,000 or less), pays 13.2 percent of their income, or $1,584 per year, in state and local taxes. Those in the highest 20 percent by income, on the other hand, pay just 8.2 percent of their income in state and local taxes.

This makes our tax system among the most regressive in the nation, meaning that low-income taxpayers pay a higher share of income in taxes than their higher-income neighbors. EITCs help states cushion the regressive nature of state taxes. 

Restoring refundability is a necessary and overdue first step

The EITC has enjoyed strong bipartisan support at both the national and state levels. Many factors help explain this support, including the fact that the credit encourages work and reduces poverty. Further, the EITC improves mothers’ and children’s health. 

Efforts to restore refundability failed in the 2018 and 2019 sessions, even though the cost—under $30 million—was dwarfed by the $1.8 billion in general revenue growth in the last two years. Oklahoma can afford to restore refundability in 2020 and is overdue in doing so. Once we take that important first step, it will be time to follow the lead of other states by increasing the state Earned Income Tax Credit.a

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Paul Shinn is Budget and Tax Senior Policy Analyst at Oklahoma Policy Institute.