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February 7, 2014

Mundane Bill a Big Deal to Lots of Virginians

Governor McAuliffe has signed into law a bipartisan bill (HB1085) that guarantees low-income working families in Virginia can benefit fully from any improvements made to the federal earned income tax credit (EITC) from now through 2017.

This was the first bill the new governor signed. While press accounts have characterized the bill as a mundane “tax conformity” measure, the General Assembly’s decision to adopt this measure touches tens of thousands of people across the state.

In 2009, Congress temporarily improved the federal EITC to help working families cope with the recession by increasing the income levels at which married couples were eligible for the credit, and adding a new tier of benefits for families with 3 or more children (previously the credit topped off at 2 children).

Because Virginia’s state version of the EITC (called the Virginia Earned Income Credit or EIC) is pegged to the federal credit, any increase in the credit at the federal level automatically flows to Virginians’ state credit, too, so long as state lawmakers allow it. But passing the legislation that allows it isn’t always a sure thing.

In 2010, the General Assembly and the governor initially refused to allow these federal improvements to be used at the state level. As a result, about 114,000 low-income Virginia families would have effectively seen their taxes go up by $6 million.

Fortunately, Governor McDonnell and the General Assembly reversed the decision and prevented the tax hike before it was too late.

Given the ongoing shaky recovery, high rates of poverty, stagnant wages and lingering unemployment since the recession ended, these improvements have been a lifeline to many families. As a result, Congress has extended their availability through 2017.

By passing HB1085 this session, lawmakers agreed to extend the federal benefit automatically to low-income tax payers in Virginia for the next four tax years.

That’s a good move and an important victory for Virginia’s hard-working families.

Lawmakers can – and should – do even more to help low-income taxpayers.

The fact is low-income workers in Virginia pay more in state and local taxes as a share of their income than high-income Virginians. Lawmakers have the chance this session to address this disproportionate impact by taking the next step and making the state credit refundable. Doing so would boost the economic security for thousands of hard-working Virginians across the state, including tens of thousands of military families.

–Sara Okos, Policy Director

The Commonwealth Institute

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