Build a Better Economy for Texas Working Families

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In Texas, we have a rather unique blend of relatively low unemployment with high poverty. In other words, we have plenty of folks who are working — and working hard — but not making ends meet. Fortunately, we have useful, yet often overlooked, tools that enable Texas to fight poverty and expand opportunity: refundable tax credits for low-income workers. With tax filing season upon us, we should consider how Texas can maximize and build upon these platforms for prosperity.

The Earned Income Tax Credit, the Child Tax Credit, and other refundable tax credits for working families have become key tools in giving families a fighting chance for a better future. When taking these tax credits into account, more than 10 million Americans, including more than 5 million children, were effectively lifted above the poverty line in 2012. The earned income credit also has long-term benefits by improving children’s academic performance and future earnings as adults.

The Texas economy benefits tremendously from the earned income credit, first enacted under President Gerald Ford and since expanded with bipartisan support. In 2013, this work-oriented tax credit pumped nearly $7 billion into the state economy, boosting the bottom line for families and communities. Nearly 1 in 3 Texas households claims the credit, one of the highest shares of any state. These Texans cook our food, provide our health care and build our homes and offices. However, most low-income, childless households are often locked out. A full-time minimum wage worker, with $14,500 in annual gross income, pays nearly $3,000 in federal income taxes and cannot claim the earned income credit, pulling their post-tax earnings below the poverty line. Changing federal policy to extend the credit to these workers could boost labor participation rates, especially for young men, and serve to strengthen families.

Tax time can also provide an opportunity to build savings for a brighter future. For the past four years, OpportunityTexas — a partnership between the Center for Public Policy Priorities and RAISE Texas — has encouraged tax filers to save a portion of their tax refund. Since 2011, more than 5,000 Texans have saved about $2 million at local community tax centers across the state. For example, a working mother in Austin, encouraged by just a $25 gift card, purchased a savings bond to start a college fund for her 4-year-old son. Recent research points to the positive role of household savings, especially for families with low incomes, in moving families into the middle class.

Unfortunately, far too many Texas working families lack the opportunity and incentive to save for the future, as the “upside-down” federal tax code mostly benefits those households that have already acquired measurable savings and assets. In fact, the bottom 40 percent of households received just 3 percent of federal tax expenditures for homeownership, retirement and inheritance, according to the Corporation for Enterprise Development.

Regrettably, Texas has a mixed record of promoting household savings. On the one hand, we have the Texas Save & Match and the Texas Financial Education Endowment to support college savings and financial counseling. On the other hand, Texas does not support community tax centers and has savings limits for working families enrolled in nutrition assistance, effectively penalizing households such as the aspiring Austin working mother for “dreaming big.” Texas has the opportunity to build upon these platforms to build savings for working families, increase college completion, and improve financial literacy. At the same time, we should remove unreasonable limits on household savings for families seeking to escape poverty.

Unquestionably, an adequate income is necessary for families to meet their basic needs and achieve financial stability. In recent years, jobs have returned at a steady pace in Texas. Aside from the energy industry, the fastest-growing jobs have been in the lower paying occupational sectors, such as retail, food service and low-level health care positions. The Center for Public Policy Priorities’s Better Texas Family Budgets tool shows that most low-income households cannot meet their basic needs without tax credits and other types of public assistance. As overall wages continue to flatten, the gap between basic expenses and income continues to widen as the Texas labor market fails to produce enough good-paying jobs that enable families to get by on their income alone. As we debate economic policies, we should recognize that, for many families, income from employment alone is insufficient to pay the bills, not to mention save for a rainy day or for college. Therefore, we need a robust set of tax credits, work supports and savings incentives for Texas families to be stable and make a down payment on a brighter future.

This was published earlier in the Austin American-Statesman on March 2nd, 2014.

At the Center for Public Policy Priorities, we believe in a Texas that offers everyone the chance to compete and succeed in life. We envision a Texas where everyone is healthy, well-educated, and financially secure. We want the best Texas - a proud state that sets the bar nationally by expanding opportunity for all. CPPP is an independent public policy organization that uses data and analysis to advocate for solutions that enable Texans of all backgrounds to reach their full potential. We dare Texas to be the best state for hard-working people and their families.

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