Reviving state tax credit would help economy, some say

Advocacy groups from across the state launched a campaign Wednesday to revive a dormant state tax credit, saying it could boost Colorado’s economy by giving money to poor families.

If they’re successful, the state Earned Income Tax Credit would give up to $440 to families with the lowest incomes, or 10 percent of the federal credit of the same name.

A single parent with two children who made $20,000 last year could expect a credit of $3,740 from the federal government this year. That would translate to a credit of $370 from the state government.

Colorado’s credit was suspended in 2002, after the economy tanked. It relied on surplus money the government is required to give back to taxpayers. It would have returned after the economy rebounded, but voters in 2005 approved Referendum C, letting the state government keep surplus money for five years.

The credit was available to workers with low incomes, including those whose incomes are so low they didn’t owe income tax. Twentytwo other states and the District of Columbia have local earned income tax credits.

Restoring Colorado’s credit would put “money into the pockets of low-income families,” which they’re likely to spend quickly, which would stimulate the economy, said Kathy White of the Colorado Fiscal Policy Institute, a Denver-based think tank. The institute is one of 40 agencies statewide working to restore the credit. Some of the others include the Colorado Society for Clinical Social Work, Denver Urban Ministries and 9to5, National Association of Working Women.

“More than 250,000 Coloradans struggle to make ends meet every day,” the Association of Working Women said in a statement to media outlets. “The EITC . . . not only offers a measure of tax fairness for them, it also helps lowincome families pay for necessities such as rent, medical care and child care and helps lift hard working women and their children out of poverty.”

The groups presented a plan for restoring the credit Wednesday that would remove its reliance on budget surpluses. They estimated payouts totaling $52 million if lawmakers restore the credit this year.

Ninety percent of that would come from federal dollars that are designated for cash payments to welfare recipients. Colorado’s counties don’t dole out all the welfare dollars they get from the federal government, White said.

The other 10 percent would come from diverting part of the money companies pay for unemployment insurance. The money would be paid back after two years, when Referendum C expires.

After 2010, money to pay for the credit would be paid from the state’s normal tax collections.

The state Legislature is expected to begin consideration of the plan later this week or early next week.