Helping working families a good deal for everyone

With tax reform among the hot topics in Olympia, Washington's Legislature can give a needed boost to the state's economy and help workers in one easy stroke.

It's called the Working Families Credit, and it's designed to help struggling low-wage earners make ends meet. If adopted here, it would:

• Boost the earnings of those who need it most;

• Benefit all communities, especially in rural areas and small towns; and,

• Operate at low cost to the state.

The beauty of this plan is its simplicity and positive outcome. That's why 22 states, the District of Columbia and four local governments have already adopted some form of the Working Families Credit.

Here's how it works:

Since 1975, low-wage workers have been able to apply for the federal Earned Income Tax Credit (EITC) from the Internal Revenue Service. The EITC is akin to a rebate check from the federal government to low-wage workers who, because of their low wages, pay little or no federal income taxes but do pay other labor-related taxes.

It since has been hailed by Republicans and Democrats alike as a highly effective means for combating poverty and encouraging work.

President Reagan — himself no champion of welfare programs — called the Earned Income Tax Credit program "the best anti-poverty, the best job-creation, the best pro-family measure to come out of Congress."

The numbers tell the story. Some 365,000 Washington state workers qualifying for the EITC in 2005 received $618 million in federal rebates, a substantial infusion of cash to the economy because they spend all they make.

Administration of the Working Families Credit would "piggyback" on data the IRS already gathers. Workers already receiving the EITC would be eligible for the Working Families Credit by making a simple application to the state Department of Revenue. There would be minimal paperwork at the state level.

If the Washington Working Families Credit were set at 10 percent of the EITC rebate, a minimum-wage earner in Washington would receive a credit or rebate of state taxes of up to $470. Once in place, the Working Families Credit would serve as an incentive for more low-wage earners to apply for the EITC and, in the bargain, the state's credit at the same time.

We see two powerful arguments for the Legislature to approve the Working Families Credit program.

The first reason is basic fairness. Low-wage workers pay a disproportionate share of their incomes to taxes. Even if they don't pay any federal income taxes, they pay sales taxes and other consumption taxes such as the gas tax.

Consider that a family balancing its budget on $17,000 a year pays about 18 percent of that income in taxes, while the highest-income family pays only about 3 percent.

The second reason is that this money gets spent right away. According to research by the Washington State Budget & Policy Center, it goes to local business for goods and services. In the Yakima Valley, one in four people filing a federal tax return qualified for the EITC. In Spokane's 3rd Legislative District, one in five qualified.

With a Working Families Credit in Washington, these tax filers and their communities would benefit by an additional 10 percent of income. Taking the 2005 example noted above, an additional 10 percent on the $618 million EITC rebates would have added almost $62 million statewide to our economy, and helped low-wage families and local merchants, too.

Moreover, the cost is low. In Nevada, which like Washington has no income tax, tax credits targeted at the working poor cost about 3 percent to administer. Washington's cost should be about the same.

There are no economic or social benefits when people live in poverty. No one gains when people with full-time jobs must depend on food banks just to put dinner on the table.

So when opportunities arise to support working families, especially when the economic and social benefits are clear, the prudent course is to act.

The state Senate just passed the Working Families Credit on a vote of 32-16-1. The House can do the same. It's a good deal for everyone.

Gary Locke, currently a partner at Davis Wright Tremaine LLP, served as Washington governor from 1997-2005. Sue Donaldson, a former Seattle City Council member, is executive director of the Washington Appleseed Center for Law in the Public Interest. The Washington State Budget & Policy Center and Michele Radosevitch, a partner at Davis Wright Tremaine, contributed their work to the Working Families Credit proposal.