A bill for the Working Families Opportunity Act (WFOA) was filed last week and, if passed, it would be the first of its kind in Arkansas and a huge step towards reducing poverty for hard working families in our state. WFOA is a tax credit that piggybacks on the federal version that is already in place (the Earned Income Tax Credit, or EITC). These credits only go to working families, and they are the nation’s most effective tool for reducing poverty among working families and children. WFOA will help working families make ends meet, particularly low-income Arkansans who have benefited least from the recent economic recovery.
It is not a handout; you have to work to receive the credit. The working families who would be eligible for WFOA already pay a much higher share of their income to state and local taxes than wealthy Arkansans. The lowest 20 percent of Arkansans pay the highest state and local tax rates as a share of their income than any other group (twice the rate as the top one percent). These credits simply help working families keep more of what they earn.
Most people who use WFOA style credits don’t take long to get back on their feet. Three out of five people who take advantage of this type of credit only use it for one or two years at a time. WFOA credits help people make ends meet while working at low wages so that they can stay employed and work their way up to better opportunities. These programs work. The federal version of this credit program lifted 6.2 million people out of poverty in 2013.[i]
When parents do better, kids do better too. Low-income children get long-lasting benefits when their parents participate in tax credit programs. Kids are shown to do better in school now, and have higher earning jobs down the road.
WFOA credits are simple and cheap to implement because they are percentages of the Federal version, which is already in use. State-level tax credits have very low administrative costs because they just require one extra line on the tax form. Nearly all of the money put towards WFOA will go directly to the families who need it (a five percent credit in Arkansas would cost about $38 million in 2016).[ii] They are simple and extremely effective, which is why they are so popular across the political spectrum. Half the states and the District of Columbia are already benefiting from programs similar to WFOA.
[i] https://www.cbpp.org/files/11-12-09sfp.pdf
[ii] https://www.cbpp.org/files/11-12-09sfp.pdf