In these uncertain economic times, Arkansas’s hard-working families are having trouble making ends meet. They need help, and a state earned income tax credit, or EITC, could make a real difference.
A state EITC based on the federal version, combined with the further reduction or elimination of the sales tax on food, would help balance the regressive nature of state and local sales taxes and create a fairer state tax system in Arkansas.
A refundable EITC is a proven method of putting more money back in the hands of those who need it most, while at the same time encouraging them to stay in the workforce. It does this by giving a tax credit to certain workers and refunding them the difference between the credit and any paid income tax.
The federal EITC has been so successful in reducing poverty that over half of all states with personal income taxes have adopted state-level EITCs based on it.
One quarter of all Arkansas families filing federal tax returns benefited from the federal EITC in 2005, returning an average of $2,016 to their pockets.
AACF estimates that it would cost approx. $56 million for Arkansas to implement a state EITC equal to 10 percent of the federal EITC beginning in FY 2009, or $113 million for a state EITC equal to 20 percent of the federal EITC.
Research shows that working families use the EITC refund to pay off debt, finance transportation to work, invest in education, and buy basic necessities—all of which have an impact on local communities. The federal EITC alone puts over half a billion dollars into Arkansas’s economy each year.