Taxes pay for the roads we drive on and the police who protect us. They support the teachers in our public schools and our soldiers overseas. They make sure doctors and hospitals have the resources to care for the most vulnerable, and (for now) that the food we eat has been inspected.
In Louisiana, overall state and local taxes are some of the lowest in the country. But an upside-down tax structure also asks poor families to pay a higher share of their income in state and local taxes than the wealthiest. Changes approved by the Legislature last year will help low-income families keep more of what they earn. Â Â
Starting with next year’s tax filings, Louisianans who qualify will be able to claim an additional 1.5 percent on their state Earned Income Tax Credit, thanks to the many legislators that prioritized low-wage working families during the 2018 session. This increase to the EITC, from 3.5 to 5 percent, will affect more than 480,000 households and return $21 million back to low-wage taxpayers with children.
Louisiana became the first Southern state to enact an EITC in 2007. Although it was small – only 3.5 percent of the federal credit – today it remains the only refundable EITC in the South. In 2018, Louisiana was one of five states that expanded their existing credit. The credit’s growing popularity around the country makes sense, because of one simple,  data-driven fact: it is an incredibly effective policy tool:
- The EITC reduces child poverty: Last year, the federal EITC kept 5.7 million people, half of them children, out of poverty. Louisiana has the highest child poverty rate in the nation, with 28 percent of all children living below the poverty line.
- The EITC improves birth outcomes and infant health: The Earned Income Tax credit can literally save lives. A study by Emory University shows that state EITCs are linked to higher birth weights, which has a huge impact future health. Low birth weight reduces a child’s ability to fight off infection and gain weight, and makes them more susceptible to diabetes, heart disease, and developmental disabilities in the long term.
- The EITC helps level the playing field for low-income families: Louisiana’s over-reliance on sales tax disproportionately burden the poor. The EITC is targeted to low-income workers with children, who are likely to spend their refund dollars directly in the communities where they live. Â
- The EITC is an investment in Louisiana’s future: When low-income families get even a modest boost to their income, it can have a lasting impact. Research shows low-income children stay in school longer, have higher employment rates as adults, and earn higher wages as adults when their families receive the EITC or comparable policy tools such as the Child Tax Credit.
Despite improvements at the state level, there are major gaps in the federal EITC that prevents it from being as effective as it could. To address that, a trio of U.S. senators introduced the Working Families Tax Relief Act this month that would significantly expand both the federal EITC and the Child Tax Credit. It also would create a new Young Child Tax Credit that is fully refundable and be geared specifically to help low-income families with children under age 6.
By making the Child Tax Credit fully refundable, and creating a new credit for young children, the bill would have a particularly strong effect on families living in deep poverty – defined as living below half the federal poverty line.
It would lift 1.3 million children out of deep poverty, reducing the deep child poverty rate by 37 percent (from 5 percent to 3 percent). In fact, a National Academy of Sciences committee that Congress charged with recommending ways to reduce child poverty recently made a similar policy a centerpiece of its package of anti-poverty proposals. Â
An analysis by the Center on Budget and Policy Priorities found that 751,000 Louisiana households, covering more than 1.8 million people, would see income gains if the bill became law. This includes childless workers, who currently are mostly excluded from claiming the credit.