Kristen Rotz: We can help Pa. families who are falling through the cracks

Working a full-time job is no longer enough to keep a family from struggling financially.

Take child care teachers, who tirelessly care for our children, or home care workers, who support our elderly loved ones. They are like so many Pennsylvanians, treading water just to stay afloat financially. This is true even when they are part of a family earning two paychecks.

A new report released by the United Way of Pennsylvania points out that 1.4 million Pennsylvania households are what would be considered Asset Limited, Income Constrained and Employed, or ALICE for short. These families earn more than the federal poverty level but still cannot afford basic needs like housing, childcare and food.

The last three years of the pandemic were hard economically on many Pennsylvanians. But what we know from our study is that post-pandemic, these ALICE families have not seen a wave of financial sustainability. We have a way of changing that, however, with refundable state earned income tax credits (EITCs).

With the federal poverty level as the primary way policymakers gauge the extent of financial hardship in their communities, a huge portion of struggling households go unrecognized. From 2019 to 2021, the total number of households in Pennsylvania increased by 2%, and the number of households below the ALICE threshold increased by 7%, from 1.9 million to over 2 million.

As the report points out, job disruptions and inflation have delivered significant financial pain. With inflation on the rise, there are warning signs that struggling households may face a more uncertain future, and with covid-19 financial supports diminishing, it’s imperative to identify long-term solutions to assist working families in Pennsylvania.

One huge way to help these families is through refundable EITCs that offer an annual lump-sum tax credit to families with low incomes to reduce or eliminate their tax liability, depending on the total sum of taxes owed.

State earned income tax credits, often modeled from the federal EITC, provide an additional benefit to the federal credit for low-income taxpayers by reducing their state income tax liability.

The United Way of Pennsylvania is not alone in supporting an EITC to help families in the state and knowing how much it could change people’s lives. Many organizations in the state are concerned.

This broad-based group advocating for a state EITC program say it may offer benefits of at least 10% and up to 25% of the federal credit. And the annual economic benefits of a refundable state EITC of 10% of the federal EITC amount would be at least $562 million per year. For a 25% credit, the likely benefits amount would be least $1.2 billion per year.

Our research shows that for every $1 spent on a state earned income tax credit, Pennsylvania receives $4 back in economic growth and saves $3 in social welfare spending.

Covid-19 shined a spotlight on the difficulties many families face when there is sudden economic insecurity. Job disruptions and inflation delivered significant financial pain.

Yet, as we step onto the other side of the pandemic, we see that many working families are still struggling and need support. With inflation on the rise, there are warning signs that low-income households may face a more uncertain future, and with covid-19 supports diminishing, it’s imperative to identify long-term solutions to assist working families in Pennsylvania.

Elected officials need to pass a state EITC program. Families deserve help as they try to get ahead. The EITC could create the kind of assistance that would allow many to do more financially than just tread water.

Kristen Rotz is president of the United Way of Pennsylvania.