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Could Massachusetts create a guaranteed income system? A new report suggests a possible first step

Earned Income Tax Credit expansion at the center of policy proposal to improve racial equity, giving lower-income families greater economic security

July 22, 2020

Cover Text Shrunk Explore the online report on bostonindicators.org

Boston – Massachusetts has an opportunity to lead the nation in providing a guaranteed income to low-income residents, utilizing a tool already at its disposal – the Earned Income Tax Credit. A new report from Boston Indicators, prepared in conjunction with the Economic Security Project and the Massachusetts Budget and Policy Center, lays out a program that would make an expanded EITC available to more than 900,000 Massachusetts households earning less than $70,000 a year.

The detailed plan is laid out in a new online report from Boston Indicators, entitled A Guaranteed Income for Massachusetts, live now on bostonindicators.org.

“The EITC provides critical support to thousands of Massachusetts households already, but its current design leaves many behind,” said Luc Schuster, Senior Director of Boston Indicators. “This proposal builds upon the system in place to provide greater supports to low- and moderate-income families, and expands the program to include others, such as students, in-home caregivers and taxpaying immigrants whose success is vital for our communities but who are excluded from the benefits program now.”

The plan relies on five key reforms for the EITC to provide all families earning up to $70,000 a cash credit of at least $1,200 a year. The reforms would:

  • Increase the state match rate from 30 to 50 percent of the federal EITC:
  • Provide a minimum $1,200 credit to extremely low-income and no-income households.
  • Extend income eligibility to include middle-income families (with annual household income up to $75,000).
  • Expand eligibility to previously excluded groups (e.g., unpaid caregivers, immigrants who pay taxes with an Individual Taxpayer Identification Number).
  • Improve access through free tax preparation services and more frequent payments.

The increased support would be especially beneficial for Black and Latinx families, who make up a disproportionate share of both families currently receiving EITC benefits, and of low-income families in the state, for whom the minimum $1,200 annual credit would represent the most substantial increase in income.

The expansion would cost an estimated $1.09 billion, an amount the authors note roughly equals the amount of special interest tax breaks handed out by the state annually. It would serve to more than double both the average credit, to $1,386 annually, and the number of total recipients, to nearly 1.8 million, including almost 700,000 children. Other options for paying for the expansion include an increase in the state income tax or the implementation of a graduated rate, a curtailment of tax deductions that disproportionately benefit high earners, or the creation of new rates for different types of income. The report explores more deeply some of these possible vehicles to offset the cost of the expansion, noting data show that those in the top 5% in income in Massachusetts currently pay a smaller percentage of their income in state and local taxes than any other group.

“The concept of a guaranteed basic income has become more widely accepted in recent months, particularly in the face of the economic devastation of the pandemic and the relief payments that allowed millions to buy groceries, pay rent or keep the lights on,” said Economic Security Project Co-chair Natalie Foster. “In an era that has exposed our deep economic inequality and tested the fraying safety net to its limit, guaranteed income allows Massachusetts to serve as a model for expanding economic equity, protecting lower-income families, and more effectively addressing the needs of communities of color.”

“Extending payments to unpaid caregivers (among others) recognizes how vital their contributions are to our economy and wellbeing,” said Phineas Baxandall, Senior Analyst at MassBudget. “Guaranteed income programs are a great start to undo the history of exclusionary – and racist – public policy that creates barriers to opportunity for our workers and neighbors with the greatest need.”

By setting a $1,200 minimum for the credit and offering the credit to those doing unpaid work, students and in-home care providers, the expansion of the EITC credit can be seen as a first step to a broader universal income measure, while keeping some of the income-based increases in payments that some proponents suggest make the EITC a work incentive program.

Lastly, the report summarizes several other programs, task forces, partnerships, and other projects that are exploring or have explored minimum guaranteed incomes around the United States. The authors suggest understanding these projects also provides crucial insight into the way economic insecurity impacts many facets of life, and how cash assistance both reduces poverty and increases wellbeing more broadly.