Strings attached to tax-break bill

OLYMPIA — The state House has passed a sales-tax break for low-income families that could send them checks worth hundreds of dollars each next year.

Or maybe not.

The House amended Senate Bill 6809 to make the tax break an option, not a requirement. The bill requires the Legislature to decide each time it approves a two-year budget whether to provide the tax break, which is projected to cost the state more than $270 million over the next four years.

"We have to have the ability to not give it some years because we don't have the money," said House Majority Leader Lynn Kessler, D-Hoquiam. "We don't want it to be an entitlement."

Senate Majority Leader Lisa Brown, D-Spokane, said she's willing to go along with the House amendment.

"Given the fiscal effect over time, it's a pretty big thing to take on in this uncertain economic climate," she said. "We'll need to make the case next year that we can afford to give this tax credit to people we believe need it most."

A recent budget forecast by the Senate Ways and Means Committee staff members shows state lawmakers could face a shortfall of almost $2.4 billion when they put together the next two-year budget in 2009.

The measure passed the House late Thursday by a vote of 57-37. It now goes back to the Senate, where it is expected to be approved. Nearly 340,000 households in the state are expected to be eligible for the proposed sales-tax credit, which would provide a 5 percent match to people who qualify for the federal Earned Income Tax Credit in 2009 and 2010. The match would bump up to 10 percent in 2011.

The measure is expected to cost the state $110 million in the 2009-2011 budget the Legislature will craft next year, and almost $165 million in the 2011-2013 budget.

Under the measure, Washington residents could start to apply for the tax credit on Oct. 1, 2009 — if the Legislature were to approve it next year. In the meantime, the state Department of Revenue will gear up to process the applications.

The Earned Income Tax Credit is a refundable federal income-tax credit for low-income working people and families. The amount of money people would get back under the bill would vary depending on income.

For example, a family of four with an income of $18,000 would receive $240 in 2009, an amount that would double by 2011, according to the Washington State Budget and Policy Center, a think tank backing the measure. The bill calls for a minimum rebate of $25 in the next two-year budget and $50 when the credit is fully implemented.

The credit would phase out completely at incomes of around $40,000 for a married couple with two children.

Critics of the tax credit say it's the wrong approach.

"I think it's a bad idea. If you want to help the working poor, you create an economic environment where they can advance," said House Deputy Republican Leader Doug Ericksen, R-Ferndale. "Tax relief should be uniform and across the board and help as many people as possible."

The Association of Washington Business also opposed the tax break. "Given the economic times we're facing, can we afford a new benefit program?" asked Amber Carter, a lobbyist for the AWB.

Andrew Garber: 360-943-9882 or agarber@seattletimes.com