Montana Can Make Tax System More Fair by Enacting a State Earned Income Tax Credit

“I remember the first time I got the EITC,” said Christy, a single working mom from Missoula.  “I had old debt and the EITC allowed me to clean up my credit and pay off debt that I hadn’t paid for years.  The second time I got the EITC, I was able to pay for my daughter’s braces.  She had very crooked teeth and wouldn’t even smile.”  The federal Earned Income Tax Credit (EITC) has helped Christy and her family achieve financial stability – and Montana could do the same.

It comes as no surprise to working families that Montana’s tax system is fundamentally unfair.  On average, in the state, the percent of their income that low and middle income workers pay is one-third greater than what highest income earners spend. But Montana taxpayers don’t have to accept this fundamental inequity. One of the best ways we can improve the fairness of our tax structure is through enacting a refundable state EITC A new report by the Institute on Taxation and Economic Policy shows just how effective this state EITC can be.

For Montanans like Christy and her family, the federal EITC helps low-wage workers get by year to year.  “Every year I use the credit to make investments that would otherwise be impossible.  I pre-pay our cell phone bills because I cannot afford to make a monthly payment with my tight budget.  These days I often use my credit to buy gift cards to use later in the year when school starts for school clothes and supplies.  Without these benefits, I would not be able to afford for my kids to fully participate in school programs like band or woodshop.”

The federal EITC was introduced in 1975 and provides targeted tax reductions to low-income workers to reward work and boost income.  The EITC allows working families to keep more of what they earn to make ends meet. In fact, expansions to the EITC in the 1990s moved more poor mothers into the workforce than any other single factor, like welfare reform or a strong labor market, transitioning nearly half a million poor mothers from cash assistance to work. By all accounts, the federal EITC has been wildly successful, increasing workforce participation and helping 6.5 million Americans escape poverty in 2012, including 3.3 million children.  In 2011, 86,646 Montanans claimed the federal EITC, injecting over $169 million of federal dollars into the Montana economy.

How would a state EITC work in Montana?

Twenty-five states and the District of Columbia already have some version of a state EITC. Most state EITCs are equal to a percentage of the federal EITC. In the same vein, Montana should look to the EITC to help working families even more.

As a working mom myself, I know how hard it can be to juggle family and work.  At the same time, being in the workforce is incredibly meaningful and satisfying to me.  I talk to many parents who feel the same, but who worry that their decisions aren’t paying off financially, due to low wages and the high costs of childcare.  A state EITC would benefit low-income families by keeping more of their paycheck in their pockets.

Montana Women Vote has worked alongside single moms and working families across the state over the last 15 years.  These families work hard, often at two or three jobs, but still struggle to make ends meet.  The rising costs of childcare, housing, and even food can make low-wage jobs unsustainable.  A state EITC would provide the added security these families need to stay in the workforce.

Lawmakers in Helena can take immediate steps to address the inherent unfairness in the tax code by introducing a refundable state EITC.  Repealing tax breaks that benefit just the wealthy is one way Montana can raise the revenue needed to create a state EITC, while helping to further improve not only the fairness of our tax system, but our state’s economy as a whole.

To read ITEP’s full report click hereSarah and Adrien (2)

Sarah Howell is the Executive Director of Montana Women Vote, a statewide organization that works to engage low-income women and families as informed voters, policy advocates, and community leaders.  She lives in Missoula with her partner and two-year-old son.

MISSOULIAN EDITORIAL: Investment in early education will pay off exponentially

“MISSOULIAN EDITORIAL: Investment in early education will pay off exponentially,” Missoulian, June 1, 2014

That’s according to statistics gathered by Early Edge Montana, the state initiative to raise awareness and support for a pre-kindergarten program. A comprehensive look at the economics of early childhood education in Montana can be found in the Montana Budget and Policy Center’s 10-page report “Pre-Kindergarten: An Investment in Montana’s Future” (Fall 2013).

Dr. Jon Griffin’s Story: A Physician’s Perspective

Earlier this month, we shared with you Michele’s story, the story of a woman caught in the coverage gap. If you haven’t had a chance to listen to her story, please do. Medicaid expansion is about more than the numbers – it affects real people.

This week, we want to share with you a Montana physician’s perspective on how Medicaid expansion would benefit his patients, his business, and the health of our state and our communities. 

I take care of people every day. That’s my business. The fact that we’re going to turn our backs on these 70,000 Montanas – it doesn’t make a lot of sense. That’s not how we do things in Montana.

Please take a moment to watch and share this important video. 

Business Leaders’ Summit on Early Childhood Education meets in Missoula

“Business Leaders’ Summit on Early Childhood Education meets in Missoula,” Missoulian, May 28, 2014.

A report by the Montana Budget and Policy Center found that a universal program would begin paying for itself in nine years and cost $88 million a year to run once fully phased in. By 2050, the costs are estimated at $212 million, far less than the $1.7 billion in anticipated benefits.

Wonky Word Wednesdays: Tax Credits and Tax Deductions

Tax credit or tax deduction? Do you know the difference?

I decided to pick this issue because at MBPC, we talk a lot about the Earned Income Tax Credit (EITC) and how it is one of the most effective ways to help working, low-income families. Don’t worry, the EITC will be explained in a future post – one step at a time, folks.

Every year when we do our taxes, people have to decide if they will use the standard deduction or the itemized deduction, which includes home mortgage interest and charity donations. Then we also have to factor in our tax credits. But do you know what’s what?

Here’s a quick comparison of what a tax deduction is versus what a tax credit is.

Tax deductions reduce your taxable income, that is, the amount of income the government will use to calculate your income taxes. One example is the charity deduction. Let’s say you make a $1,000 donation to a worthwhile charity, say the Montana Budget and Policy Center (hint, hint). This deduction reduces your taxable income by $1,000. The amount of actual tax savings will depend on what tax bracket you are in. If you are in a 15% tax bracket, a $1,000 tax deduction will save you $150 in taxes.  If you are in a 40% tax bracket, this same $1,000 tax deduction will save you $400 in taxes.

On the other hand, tax credits are applied directly to your tax liability – in other words – what you owe. So if you have a tax credit like adopting a child, buying a first home, or home office expenses, those reduce your tax bill, dollar for dollar. For example, if you qualify for the full child tax credit of $1,000, you will save $1,000 in taxes.  

A tax credit has a bigger impact on your tax liability than a tax deduction of the same amount.

But wait, there is more. deduction

Since this is a Wonky Word post, I thought I would wonk out (yes I am using it as a verb) on this a bit more.

Did you know that a child can be a tax credit and a tax deduction? If your income is low enough to qualify you for the Child Tax Credit – your new bundle of joy is a credit. If it does not, then you can still claim little Bobby or Sally as a dependent, which is a tax deduction!

Also, some tax credits are refundable. That means if the amount of taxes you owe is less than the credit, you will get a refund. As I mentioned earlier, the Earned Income Tax Credit is an example of a refundable tax credit. But we’ll save that for another week.

Wow, I could go on and on.  Thanks for checking into this week’s Wonky Word Wednesday. Tax credits and deductions impact all of us. I’m glad we all know the difference now.

I hope you will check back each Wednesday for more wonky words. If you have suggestions, email me at tjensen@montanabudget.org or post something to our Facebook page.

Honoring Montana’s Veterans

Yesterday, we honored and remembered the veterans who have given so much to protect our freedom. We would like to extend a whole-hearted thank you to those who have served.

One of the ways we can honor our Montana veterans is by ensuring they always have access to quality, affordable health care by expanding Medicaid.

Did you know?

  • Montana has the highest percentage of uninsured veterans in the nation – 17.3%.
  • 4,400 uninsured veterans plus 2,500 of their family members in Montana would qualify for Medicaid expansion.
  • 2,600 underinsured veterans (those who only have access to VA care) would also qualify.
  • There is only one Veterans Affairs (VA) hospital in Montana, making it difficult for many Montana veterans to receive health care at one.
  • Uninsured veterans often have significant health issues that need treatment – one-third have at least one chronic health condition.

Montanans have always been proud to serve those who have honorably served us. Ensuring that these men and women who have worn our country’s uniform can receive the health care they need, while also bringing jobs to the state and boosting our economy, is the right choice for Montana.

To learn more about how Medicaid expansion would benefit Montana’s veterans, be sure to read MBPC’s report here: Medicaid Expansion Would Benefit Montana Veterans.

Wonky Word Wednesdays: Mills

You might have heard us mention the term “mills” a few times lately. Between local school mill levies, and the Charter Communications ballot initiative that could dramatically impact local mills and taxes, property taxes are an important topic right now. This week we are undertaking our first by request Wonky Word: mill.

If you are a homeowner, you are probably familiar with mills because they are a type of property tax. From there, most of us know they have something to do with schools and other local needs like fire departments. We know we are asked to vote on mill levies occasionally, and usually there is a number associated with it, say a 5 mill levy. When we vote, the ballot typically informs us about much it would cost us if our house was worth $100,000. After that, I would assume that is where the knowledge ends.  At least that is where mine ends.

So what is a mill? A mill, from the Latin mille meaning thousand, is 1/1000 of a dollar or 1/10 of a penny. One mill generates $1 in revenue for every $1,000 in taxable value. Seems simple right?

Well, the big trick is the “taxable value” part. In order to get “taxable value”, the Department of Revenue determines the market value of the property (how much the home is worth). For residential property, a portion of this value is then exempt (called the homestead exemption), and remaining amount is called the taxable market value.  Then, the state legislature determines what portion of the taxable market value will be subject to tax. This tax rate is applied to that taxable market value. That gets us the taxable value of the property. For example, let’s say my home has a taxable market value of $100,000, and the state legislature has set my property tax rate at 3%. The taxable value of my home is $3,000.

When my local school board asks me to vote for a mill levy, one mill would be 1/1000 of the $3,000 of taxable value. Let’s say the school board is asking for a 6 mill levy to help build a new elementary school. The levy is applied to the taxable value of property at a rate of 6/1000,  or .6%. The calculation for this would in our example be:

$100,000 x 3% = $3000 (taxable value)

$3,000 x .6%= $18 (cost of the 6 mill levy)

In total, the state imposes five different mill levies totaling 101 mills. In addition to the state mills, local cities and counties apply mill levies to the property within their jurisdiction to help fund local government operations. The legislature sets the maximum millage authority for these local taxing jurisdictions. In 2012, an average of 548 mills was applied to all classes of property in the state. In sum, property taxes comprise about 12% of our state and local revenue.

Phew! That might have had a few wonky words in it. But this is what I hope you will take away: local levies are an important part of our tax code, and critical to providing essential public services like education inour communities. 

I hope you will check back each Wednesday for more wonky words. If you have suggestions, email me at tjensen@montanabudget.org or post something to our Facebook page.

Michele’s Story: A Woman Caught in the Coverage Gap

When we talk about Medicaid expansion, often we focus on the numbers. 70,000 Montanans who would be able to access affordable health care. $5.4 billion in federal funds to boost our economy. 12,000 jobs created. $1.84 million dollars lost every day we wait. 

But those numbers don’t tell the whole story.

They don’t tell the story of what it is like for the tens of thousands of hardworking Montanans who are unable to afford health insurance. 

“I’ve done what everyone does in Montana. I’ve made a living; no matter what. I’ve been a logger; I’ve cut meat. I’ve owned my own semi, I own my own slaughterhouse. I always do whatever it takes to make a living. I haven’t had health insurance for five years now.”

This is Michele’s story. The story of one of our neighbors. The story of someone who needs Montana to expand Medicaid. Listen to her story here. And be sure to share it with your friends and family who are interested in knowing the whole story on Medicaid expansion. 

Congrats, grad! Now here’s the bill.

It’s graduation season, and we would like to extend a big congratulations to all the college graduates earning their diplomas this month! A college degree – whether an associate’s, bachelor’s or advanced degree – is a solid investment for future lifetime earnings. But that lifetime investment is getting harder for many students to obtain.  Nationwide, we hear about more students financing their college education through loans and being saddled with debt when they enter the workforce. But what does this problem of student debt look like in Montana?

Compared to colleges and universities in neighboring states, Montana’s tuition levels have stayed relatively low.  The average tuition and fees for an in-state freshman at UM or MSU is $6,399, over $1,500 less than the average for schools in the rest of the region.  While the tuition and fees paid by Montana students have increased by 55% in the past decade, that is a lot less than the 110% in other states.  

ScholarshipsHowever, Montana students have higher debt loads than the national average.  In 2012, almost two-thirds of Montana students took out loans, with an average total debt of $26,440 for a baccalaureate degree. But here is the key figure you need to pay attention to – although tuition at UM and MSU has increased by 11.5% since 2008, debt load for Montana students has increased by a much larger amount – 25%. Debt is a growing problem for Montana students.

So why has college debt increased at a greater pace than tuition? 

Part of the reason is that Montana has failed to keep up in providing need-based aid to lower-income students.

Additionally, a recent report by the Brookings Institute notes that while a portion of rising student debt can be attributed to increased college costs, that doesn’t entirely explain the increase.  There are other reasons students are incurring more debt. Not surprisingly, the economic downturn has played a large role. Additionally, lower wages for workers have necessitated more families finance college costs through loans. 

What does higher college debt mean for Montana students? 

There is no question that a college education still produces dividends for the future.  But the trend of taking out more debt to attend college can impact career choice and financial decisions later in life.  Students with higher debt are less inclined to take jobs in government and public service jobs.  Brookings also notes that, recently, students with high debt burdens tend to have lower credit scores, making it more difficult to buy a home.  The report shows that homeownership rates of 30 years olds with student debt has fallen compared with students graduation without debt.  Students with college debt may also delay saving for retirement.Debt

This is a problem that affects all of us. The debt burden of Montana students negatively impacts economic growth in our state, and the issue is gaining state-wide attention.

The Montana Board of Regents, the governing body for Montana’s university system, will be discussing this very issue next week at its meeting in Havre.  We commend the Board of Regents for continuing the discussion on this issue and hope other policymakers will consider ways to make college education more affordable for low-income families and lessen the debt burden of attendance.  

Wonky Word Wednesday: The Federal Poverty Line

Thank you for all of the great feedback last week from our first Wonky Word Wednesday!

We’ve been talking a lot lately about Medicaid Expansion in Montana, and how it would benefit people living below 138% of the federal poverty line. But what do we mean when we say that? Where is that line, and where does it come from? To answer that question, we begin with this week’s wonky word: Federal Poverty Line, or FPL for short.

Before we begin, I have to be honest. For years I have been confused whether to call it the federal poverty level or the federal poverty line. Doing this research, I learned that although we often talk about people living below the “poverty level,” the federal government refers to “poverty guidelines.” For today’s purposes, we are going to call it the Federal Poverty Line.

What exactly is the Federal Poverty Line?

Put simply, the poverty line is a threshold used for calculating official poverty statistics and to determine eligibility for certain federal programs. Below the line, a person is officially considered to be living “in poverty.” The current FPL is updated yearly to reflect changes in the cost of living.  In 2014, a single person is at 100% of the FPL if he or she makes less than $11,670. For a family of three, the FPL is $19,790. Interestingly, Hawaii and Alaska have a higher poverty line because of the expense to live there.

Why do we have it? What is it used for?

The FPL determines eligibility for various federal programs, such as Head Start, the Supplemental Nutrition Assistance Program (SNAP), the National School Lunch Program, Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), Job Corps, and the Low-Income Home Energy Assistance Program (LIEAP). Different percentages of the FPL can be used for this calculation.

Here’s another example. If Medicaid Expansion were to pass in Montana, people living below 138% of the FPL would qualify for Medicaid health care coverage.  That means earning just over $16,000 a year for an individual, or $27,000 a year for a family of three. There are up to 70,000 Montanans who would qualify under that definition.

 $11,670 doesn’t sound like very much money. How’d they come up with that?

The formula we use for poverty thresholds dates back to the 1960s, when it was developed by Mollie Orshansky of the Social Security Administration. She figured food should cost about one-third of a family’s budget, so she multiplied how much the U.S. Department of Agriculture’s economy food plan costs by three to calculate the minimum a family would need to get by. With a few minor changes, these are pretty much the guidelines we follow today.

The problem here is food used to make up a much larger percentage of a family’s budget than it does today. Other costs, like child care and education, have risen at an even greater rate so even families living above the poverty line might be struggling to get by.

So what do we do with this information?

Right now there are 152,000 people living below the FPL in Montana, over 15% of the population. The Montana Budget and Policy Center is continuing to research ways to help Montana families improve their quality of life and rise above this line. Some of these ways include expanding Medicaid, providing state funding for pre-K, and improving the lives of American Indians in Montana.

I hope you will check back each Wednesday for more wonky words. If you have suggestions, comment below, email me at tjensen@montanabudget.org or post something to our Facebook page.