Testimony at the Public Hearing on the Earned Income Tax Credit Expansion Clarification Amendment Act of 2022

Chairperson McDuffie and members of the Committee, thank you for the opportunity to submit written testimony. My name is Erica Williams, and I am the executive director at the DC Fiscal Policy Institute (DCFPI). DCFPI is a nonprofit organization that shapes racially-just tax, budget, and policy decisions by centering Black and brown communities in our research and analysis, community partnerships, and advocacy efforts to advance an antiracist, equitable future.

I will focus my testimony today on B24-0616, “Earned Income Tax Credit Expansion Clarification Amendment Act of 2022.” DCFPI fully supports this legislation to disregard monthly payments of the DC Earned Income Tax Credit (EITC) as income when determining eligibility for other public benefits. We urge the Committee to also consider some modifications to this legislation and additional inquiries to ensure monthly EITC recipients—the large majority of whom are Black women and their children—are not penalized by the well-intentioned goal to smooth out the monthly finances for households with low incomes. The Committee should:

  • Broaden the language in the bill to disregard any periodic payments of all low-income tax credits from the definition of income for the purposes of determining public benefit eligibility.
  • Work with General Counsel at the Department of Human Services (DHS) to determine the full range of public benefits that may include monthly payments of the EITC in determining income eligibility.
  • Consider other ways of holding EITC recipients harmless, like an opt-out option, especially should federal agencies operating food assistance, housing vouchers, or other programs overrule the provisions in this bill.

Adopt B24-0616 and broaden the language in the bill

As the Council well knows, DC’s EITC makes a big difference in the lives of DC families with low and moderate incomes. The EITC:

  • Offers a cash boost to low paid workers—especially those with incomes between $10,000 and $30,000—to meet basic needs, like paying for food, bills, transportation, and child care.[1]
  • Improves racial and gender equity. Black and brown residents—especially women—are disproportionately likely to be in low wage work and eligible for the EITC. In DC, around seven in ten eligible EITC filers or their spouses are women, and about seven in ten are Black.[2]
  • Delivers a lasting benefit to children. Research finds that young children in families with low incomes that get a cash boost like that provided through the EITC tend to do better and go further in school, and work and earn more as adults, likely because the additional resources help parents better meet their needs. Children of color are even more likely to see these improvements.[3]

The District of Columbia is the first jurisdiction to enact an EITC with monthly payments. The fiscal year (FY) 2022 budget increases the District’s EITC to 100 percent of the federal credit over several years and provides for monthly DC EITC payments starting in tax year 2022 (to be issued starting in calendar year 2023). The monthly payments will act as a basic monthly income and smooth out household finances for those making ends meet on low pay.

However, state periodic tax credit payments could jeopardize families’ ability to receive support from some public assistance programs because federal law does not exempt state tax credits paid periodically from being counted as income under many federal public benefits programs, as it does local lump sum tax refunds and federal tax credits paid periodically (such as the temporarily expanded Child Tax Credit). Federal agencies would likely consider a periodic payment—particularly one that is monthly—as predictable income and therefore countable when determining eligibility for some federal means-tested programs.

The Committee should advance, and the Council should adopt, “The Earned Income Tax Credit Expansion Clarification Amendment Act of 2022,” as a first step in averting this problem. The Act:

  • Amends the District of Columbia Public Assistance Act of 2002 to exclude from the definition of earned income monthly payments of the DC EITC. This has the effect of eliminating monthly EITC payments as income in determining eligibility and benefits for Temporary Assistance for Needy Families (TANF), medical services, General Assistance, and Interim Disability Assistance;
  • Amends the Food Stamp Expansion Act of 2009 to exclude from the definition of income monthly payments of the EITC. This has the effect of eliminating monthly DC EITC payments in determination of Broad-Based Categorical Eligibility for Supplemental Nutrition Assistance Program (SNAP) (e.g., TANF recipients automatically being eligible for SNAP).
  • Amends Title 47 of the D.C. Official Code to exclude payments of the District EITC from the determination of income for purposes of qualifying for public assistance. This has the effect of adding to the DC Code on tax credits additional language eliminating monthly EITC payments in determining eligibility for public assistance.

DCFPI encourages the Committee to broaden the language in the bill to be inclusive of 1) all low-income tax credits and 2) any kind of periodic payment. First, it may be that in the future the District adopts another type of tax credit targeted at households earning low incomes, like a child tax credit, or makes other tax credits refundable, like the child and dependent care credit. It would be wise to leave open the possibility to pay those tax credits out in regular payments. Second, it may be that Food and Nutrition Service (FNS) and other federal agencies are more likely to approve the income disregard for quarterly or tri-annual payments of tax credits or that other low-income tax credits are small enough to warrant less frequent disbursements. Broadening the language to “periodic” payments offers some flexibility to design program administration as needed.

Work with General Counsel at DHS to determine the full range of public benefits

Even if this Act is adopted, federal agencies may overrule the changes. Some public benefit programs allow states to shape eligibility guidelines, like TANF and federal child care assistance.[4] For most people, Medicaid eligibility is based on modified adjusted gross income, so tax credits whether paid in lump sum or monthly should not have an impact. However, other programs have federally set rules that are less flexible. SNAP eligibility rules and benefit levels, for example, are set at the federal level and uniform across the nation. States have limited flexibility to tailor aspects of the program, and changes to rules must be approved by the US Department of Agriculture’s FNS. This is likely the type of public assistance EITC recipients are most at risk of losing, in part or in full, due to monthly EITC payments. About 37 percent of EITC-eligible tax filers in the District also participate in SNAP, according to unpublished data by the Center on Budget and Policy Priorities.[5]

In addition to the provisions in this Act, the District will need to amend its state plan for SNAP to eliminate monthly EITC payments as income in determining Broad-Based Categorical Eligibility and SNAP benefit levels. It is not a guarantee that FNS will approve the change. There is at least one case of the Department of Agriculture (USDA) FNS denying a state (Oregon) the ability to exempt monthly payment of a state-level tax credit from SNAP eligibility determination, and the USDA under President Trump rejected efforts to exclude state periodic payments of refundable tax credits as countable income for SNAP.[6]

Other public benefits may also be at risk for recipients of monthly EITC payments and the Committee should work with the General Counsel at DHS to determine the full scope of the problem. Federal housing vouchers and Supplemental Security Income are two such examples. However, these programs reach fewer people than SNAP and the overlap with the EITC-eligible population may be lower due to the age, work status, and income of those most likely to receive these benefits.[7]

Consider other ways of holding EITC recipients harmless

As the District amends its SNAP state plan to gain approval of a disregard of monthly EITC payments, Council should be prepared with an alternative plan for holding harmless EITC households. At a minimum, EITC participants should receive information and guidance on whether and how monthly payments of the credit may affect their receipt of other public benefits. The Committee could work with the Office of the Chief Financial Officer to deploy some of the new capacity funded in the FY 2022 budget for outreach and administration of monthly payments for this guidance.

In addition, the Committee could consider adding an “opt-out” provision for EITC recipients who would face loss of the value of other public benefits by receiving monthly payments of the DC EITC. Other families also may want to opt out even if they’re not at risk of losing other benefits, for example if they need to pay for a big-ticket item like an expensive car repair or prefer a lump sum to cover a backlog of rent and bills. The Committee and Council should think through parameters for this option and then require outreach and guidance to working households to alert them to their choices.

DC has made great strides in leveraging this proven tool for reducing poverty and inequality and advancing racial, gender, and economic equity for more than 60,000 households. Periodic payment of the credit is a laudable step toward smoothing out the financial stability of families working for low pay. We urge the Committee and Council to do all that’s possible to reduce risk and increase DC’s options for boosting families and holding them harmless.

Thank you for the opportunity to testify, and I am happy to answer any questions you may have.

[1] Office of Revenue Analysis, “District of Columbia Tax Expenditure Report,” December 2020.

[2] Center on Budget and Policy Priorities estimates prepared using Urban Institute’s Analysis of Transfers, Taxes, and Income Security (ATTIS) microsimulation model and American Community Survey data via IPUMS USA.

[3] Chuck Marr, et al., ”EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children’s Development, Research Finds,” Center on Budget and Policy Priorities, October 1, 2015.

[4] TANF: Federal statute gives states flexibility to decide what types of income to include for the purposes of TANF eligibility determinations. TANF Statute, Social Security Act, Title IV (Part A of Title IV), https://www.ssa.gov/OP_Home/ssact/title04/0400.htm.

Childcare assistance: “Lead Agencies retain broad flexibility to set their policies and procedures for income calculation and verification.” 2016 CCDF Final Rule, https://www.govinfo.gov/content/pkg/FR-2016-09-30/pdf/2016-22986.pdf.

[5] Unpublished estimates by CBPP derived from the Urban Institute’s Analysis of Transfers, Taxes, and Income Security Microsimulation Model using data from the 2018 American Community Survey, accessed via IPUMS USA.

[6] Letter from USDA FNS to Oregon DHS in June 2018 and unpublished memo from the Center on Budget and Policy Priorities in 2022.

[7] For information on federal housing assistance in DC, see: https://www.cbpp.org/research/housing/federal-rental-assistance-fact-sheets#DC and for information on federal SSI in DC see: https://www.ssa.gov/policy/docs/statcomps/ssi_sc/2019/table01.html.