Maryland Gov. Wes Moore, in his first State of the State address, promoted an “audacious goal” to end child poverty in the state. He takes his first step toward that goal this week.
Moore, a Democrat, hopes to build on the work of lawmakers and the prior governor in strengthening tax credits that help low-to-moderate income workers and low-income families with small children. The two tax credits, coupled with increases in the minimum wage, would help thousands of Maryland families with children begin to climb out of poverty, according to Moore’s administration.
An estimated 14% of all children in the state — nearly 188,000 kids — live in poverty, according to the Annie E. Casey Foundation in Baltimore.
“We can, and we will, end child poverty in the state of Maryland,” Moore said in his State of the State address. “That mission begins this year, right now, during this legislative session.”
On Thursday, Moore’s proposed Family Prosperity Act gets its first airing before lawmakers. Lt. Gov. Aruna Miller, who is a former lawmaker, will lead the lobbying effort for the Moore administration.
The Family Prosperity Act targets two tax credits that experts say do the job they’re supposed to do in incentivizing work and providing a break to struggling taxpayers: the Earned Income Tax Credit and the Child Tax Credit.
The Moore administration’s thinking is that when low-wage workers are given a financial boost, it helps not just them, but their children, too.
In addition to seeking to boost the tax credits, the governor will make his pitch to lawmakers in the coming weeks to accelerate the minimum wage increase to $15 per hour this year.
All told, hundreds of thousands of people, including children, would see a financial benefit if the governor’s proposals on tax credits and the minimum wage are passed, according to the Moore administration.
The Moore administration’s estimates: 400,000 taxpayers would benefit from the changes to the Earned Income Tax Credit; 40,000 would benefit from the Child Tax Credit; and once the minimum wage is bumped to $15 per hour, 217,000 workers — who have 152,000 children — would see their family incomes increase by nearly $1,000 per year.
In a statement, the governor said: “By reducing the number of children living in poverty and the severity of poverty, and by raising the minimum wage to $15 per hour and indexing it to inflation, we can lift more than 152,000 children in Maryland to the next rung of the ladder and that’s how we’re going to create a Maryland that leaves no one behind.”
How the tax credits work
The Earned Income Tax Credit is one of the government’s most powerful tools for helping lift people out of poverty, and has a history dating back to the 1970s.
It’s generally received bipartisan support. And one in four Americans benefits from the Earned Income Tax Credit at some point in their life.
Instead of offering cash assistance to people with low incomes, the Earned Income Tax Credit is designed to offset the payroll taxes that come out of low-income workers’ paychecks. The credit gives such a generous discount on taxes that the amount of the credit often exceeds the amount of taxes owed, resulting in a big refund in the spring.
“The term we use is to ‘make work pay,’” said Robin McKinney, co-founder of the CASH Campaign of Maryland, which helps low-income residents with financial advice and tax help.
The Earned Income Tax Credit is a credit on a taxpayer’s federal return and many states, including Maryland, offer a matching credit. Currently, Maryland taxpayers making less than about $60,000 may be eligible, depending on the size of their family and number of dependents.
In Maryland and the District of Columbia, the average worker who receives the tax credit only gets it for three years, and then they make too much to qualify, in part due to the credit itself, supporters say. The fact that the credit is applied as a lump sum at tax season is important, McKinney said. For someone who is low-income, getting $1,000 all at once is much more valuable than getting about $40 extra per paycheck, money that can easily disappear.
“What we find is that people are able to do big purchases,” McKinney said. “We see a lot of people who are able to use it for a security deposit or first and last month’s rent, or to bulk buy.”
In 2021, then-Gov. Larry Hogan and lawmakers made Maryland’s benefit for the Earned Income Tax Credit more generous, moving from matching 28% of the federal credit to matching 45% for most who get the credit. Taxpayers without children, who get a rather small tax credit, were bumped to a 100% match.
But it was a temporary measure that was part of a broader aid bill called the RELIEF Act intended to help struggling workers and families during the coronavirus pandemic that won near-unanimous bipartisan support. Lawmakers also extended the tax breaks to noncitizen workers (some with legal status, some without) over Hogan’s objection that year.
The result was that about 400,000 Marylanders received an additional benefit of about $1,000, often as part of a tax return refund.
The more generous benefit was only for three tax years, and this year’s tax return filing season is the final time that taxpayers who claim the credit would get the extra money. Moore’s proposal is to make the more generous benefit permanent going forward.
The Family Prosperity Act would also revise the Child Tax Credit so that more Marylanders could receive it. The eligibility for the tax credit has been so narrow that fewer than 100 families were receiving it in past years, according to the Moore administration. Families needed to have very low incomes and a child with special needs in order to claim it.
Under the governor’s bill, families with less than $15,000 of income and a child that’s either younger than 5 or older with a disability, would get a $500 tax credit under the Child Tax Credit, according to the administration. Like the Earned Income Tax Credit, the money can end up as part of a refund because of the way the credit is designed.
The Moore administration estimates 40,000 families would be helped by the Child Tax Credit expansion.
As for the minimum wage, it’s already on a schedule of increases that will top out at $15 per hour in a couple of years. Moore is proposing to jump the minimum wage to $15 on Oct. 1, and make future increases automatic based on inflation starting in 2025.
‘I felt like I had a chance’
Programs such as the Earned Income Tax Credit are designed to help people like Aliya Kingwood.
Kingwood, 28, was set to graduate from Morgan State University with an electrical engineering degree when the pandemic hit in 2020 and her post-graduation job dried up. She worked as a tutor, but when her car broke down and she couldn’t afford to fix it, she lost out on students.
Kingwood’s mother encouraged her to contact the CASH Campaign of Maryland for help with her finances last year.
The CASH Campaign, which stands for “creating assets, savings and hope,” offers free tax preparation and financial advice for low-to-moderate income residents.
Kingwood was thrilled to learn that not only could she claim the Earned Income Tax Credit, but she also was owed federal pandemic assistance payments that she didn’t receive when they were issued because she was a student. The money was enough to pay off bills, put a down payment on a car and pay for car insurance.
“It literally changed my life,” said Kingwood, the mother of an 8-year-old boy.
With the car, Kingwood was able to resume her tutoring work, no longer beholden to Baltimore’s bus system. “It gave me a little more freedom,” she said. “I felt like I had a chance.”
Kingwood also joined a program that mentors young women of color who want to join the patent law industry. She recently landed a job putting her engineering expertise to work as a technical specialist for a law firm that handles patent applications. She’s now making enough money that she’ll no longer qualify for the Earned Income Tax Credit.
“It’s a good thing,” Kingwood said at a recent event promoting the tax credit. “Your girl is moving up!”
The path forward
Nonpartisan analysts haven’t yet crunched the numbers on the long-term costs of boosting the tax credits. But Moore put $171 million in his budget next year to cover the anticipated costs.
“These credits have clear evidence-based results showing material reductions to the number of children living in poverty and the severity of poverty as well as improvements to child health outcomes,” Moore’s team wrote in a budget summary.
McKinney, from the CASH Campaign, said the cost is worth it in the long run. When families have more financial stability, it helps children succeed in school, improves maternal and infant mortality, reduces domestic violence and more.
“We’re actually saving on some of the other challenges that we see,” she said.
There’s also no estimate yet for the cost of increasing the minimum wage, although that burden will mainly fall to private companies who must boost worker salaries. Moore put $413 million in his budget proposal to cover the increased wages for state-funded workers, including those at organizations who provide care to people with intellectual disabilities or behavioral health concerns.
The Moore administration is optimistic about the chances of passage. Moore has plenty of lawmakers on his side in the Democrat-dominated General Assembly. A total 88 senators and delegates in the 188-member General Assembly signed on as cosponsors of the Family Prosperity Act.
A coalition called Tax Credits for Maryland Families, composed of mainly progressive groups, is working to push for the governor’s proposed changes.
Cathryn Paul with CASA, a group that advocates for immigrants and is part of the coalition, said the tax credits are a “lifeline” for immigrant families, and lawmakers should ensure immigrants continue to be included, regardless of their citizenship status.
“With rising costs hitting food, fuel, and rent, parents and kids in Maryland are struggling now more than ever,” said Benjamin Orr, CEO of the Maryland Center on Economic Policy, which is part of the coalition. “It is time for state legislators to step up where the federal government has failed and fight for families in need.”
Although the governor’s bill enjoys significant support, it could be changed as it goes through the General Assembly’s process.
House of Delegates Speaker Adrienne A. Jones noted that lawmakers had already planned to extend the changes to the tax credits that the governor is now championing.
“The General Assembly has always intended to continue the Earned Income Tax Credit for Marylanders; it is one of our most effective tools to fight poverty,” said Jones, a Baltimore County Democrat, in a statement. A House committee will do its due diligence on all tax credits “to make sure the benefits outweigh the costs,” she said.
“We look forward to working with the governor on his legislation,” Jones said.
Senate President Bill Ferguson said that the Earned Income Tax Credit is difficult and confusing for taxpayers, and significant numbers of people who are eligible never claim it. The Child Tax Credit, meanwhile, is more straightforward. So he’s considering “opportunities to mix the two together” to have a package of tax credits that’s easier to administer.
“It all has to be financially viable, but it is likely that we will make some changes to try and create the most efficient tax policy to help reduce childhood poverty,” said Ferguson, a Baltimore Democrat.
Comptroller Brooke Lierman, the state’s chief tax collector, also said she’s concerned that taxpayers are missing out on these valuable tax credits. She’d like to have more resources so her office can contact individual taxpayers to let them know they’re eligible. At least 300,000 Marylanders are missing out on the Earned Income Tax Credit, she said.
“I’m excited to strongly support the governor’s legislation and then to make sure that we have the resources in the comptroller’s office to do the outreach to make sure Marylanders are really benefiting,” she said.
