Should the state double the exemption taxpayers can claim for dependents?
Nov 1, 2019
By Chelsea Sedani, Weymouth resident and Director of Advocacy at EMPath / Boston Globe
If the goal is to provide tax support for Massachusetts residents who need it most, there is a better way to do it. Doubling the $1,000 exemption allows tax filers with dependents to reduce their taxable income. With the state’s 5 percent income tax rate, the proposal provides up to $50 of additional benefit per dependent, no matter how high your income.
However, the doubled exemption is worthless if you would have received a tax refund anyway, or if your income is so low that you aren’t required to pay income taxes.
It’s important for tax policies to be better targeted. Massachusetts generally requires those with smaller incomes to pay a higher share in state and local taxes. The Massachusetts Budget and Policy Center calculates that families with incomes in the bottom 20 percent pay on average 10 percent of their income, while those in the middle 60 percent pay 9 percent and those in the top 1 percent less than 7 percent.
For the same cost as the doubled exemption, we could more effectively target tax relief towards working families by increasing the state Earned Income Tax Credit by nearly 10 percentage points. Increasing the state EITC is a better form of tax relief for low-income working households. By providing a refundable credit instead of an exemption, even the lowest-income qualifying family receives full support. The program delivers more bang for the buck because it goes to workers with incomes below about $56,000, depending mostly on family size.
Beyond being one of the most effective tools to combat poverty, a strong EITC delivers a variety of benefits. Studies show the EITC improves health outcomes for families by reducing stress and providing better access to healthy food and good medical care. Likewise, it is shown to improve kids’ test scores and graduation rates.
In my work, I hear from families struggling with Massachusetts’ high costs for housing and child care. They benefit greatly from the EITC and rely on it to cover necessities, pay off debt, and save for emergencies. Those who need relief the most are often unable to use the dependent deduction. Let’s help working families, but do it the smart way.