The Economic Progress Institute supports Senator Felag’s SB2054, which would increase Rhode Island’s Earned Income Tax Credit (EITC) from 16% to 17% of the federal EITC for tax year 2025 and to 18% of the federal EITC for tax years 2026 and beyond.
Rhode Islanders value financial freedom. Unfortunately, too many working Rhode Islanders are struggling to meet their basic needs. According to the Economic Progress Institute's 2022 RI Standard of Need Report, 61% of single adults and 70% of single parents with two children struggle to meet their basic needs. The Earned Income Tax Credit (EITC) is a tax credit that helps Rhode Island families by putting money back into the pockets of low- and modest-income working people. The credit is also “refundable,” meaning that it also helps lowest wage workers get money back from the IRS as long as the EITC exceeds their tax liability.
The EITC is an effective anti-poverty measure. In 2018, the federal EITC lifted about 5.6 million people above the poverty line, including nearly 3 million children. The credit also made another 16.5 million people, including 6 million children, less poor. By reducing poverty, the EITC also helps families and children thrive. Studies have shown that increasing the EITC is linked with improving infant and maternal health. Moreover, when families receive larger state or federal EITCs, their children achieve better test scores than children from similar families who did not receive larger credit expansions. The children were also more likely to finish high school and go to college. Although the EITC is a powerful tool to lift hard-working Rhode Islanders out of poverty, RI's EITC is significantly lower than the rest of New England. As shown in figure 1 (download document for image), Connecticut and Massachusetts have state EITCs that are at 40% of the federal EITC. Vermont is at 38%, and Maine is at 25% for workers with dependents, and at 50% for workers without dependents. Rhode Island is significantly behind at only 16%.
We urge the committee to consider increasing the EITC to even more than this bill proposes. HB7589 by Representative O’Brien would increase the state EITC to 30%, which would have a much more significant impact on Rhode Island families. Increasing the state EITC by 1% means less than $2 extra a month for the average Rhode Islander. We urge the passage of SB2054 but would recommend increasing the EITC even more than this bill proposes.