Maryland's working poor likely to get a boost

April Matthews of Park Heights waits for the No. 3 bus after getting off work from her job at a Days Inn. Her bus commute takes her two hours each way, but she plans to use a $3,000 earned income tax credit to buy a car.
April Matthews of Park Heights waits for the No. 3 bus after getting off work from her job at a Days Inn. Her bus commute takes her two hours each way, but she plans to use a $3,000 earned income tax credit to buy a car. (Kim Hairston / Baltimore Sun)

Amid the partisan discord in Annapolis, Republicans and Democrats do agree on one thing.

They want to funnel as much as $70 million into the pockets of Maryland's working poor by expanding a program widely considered the government's most effective tool for helping people out of poverty.


The Earned Income Tax Credit is so popular on both sides of the aisle that President Barack Obama, a Democrat, and House Speaker Paul Ryan, a Republican, have pushed nearly identical plans to expand it at the federal level, though they disagree about how to pay for it.

In Maryland, Republican Gov. Larry Hogan and his chief critic in the Senate, Democrat Richard S. Madaleno, have pitched competing plans to enhance the state version of the credit, by giving those who claim the credit more money or increasing the number of people who can claim it.


While any legislation would take effect next tax season, politicians from both parties are certain the General Assembly will vote to expand the tax-credit program. The state has a $450 million surplus this year.

"We might argue with the governor and the governor argues with us, but we share a common enemy," said Del. Curt Anderson, a Democrat who chairs Baltimore's House delegation. "We understand poverty is the root of all the state's problems."

When combined with a federal credit, the program can give the state's poorest families a lump sum of up to $6,000 a year — enough for many to start climbing to the middle class.

Policy wonks consider the tax credit an alternative to welfare and a cash infusion to the working poor that might be more effective than raising the minimum wage. Although it is called a credit, many recipients get back more money than they paid in taxes. In Maryland, which gives among the most generous state-level refunds, one in seven taxpayers qualify each year.


In Baltimore, more than one in four do.

It would have taken April Matthews, 53, three years to save the $3,000 she will receive as a lump sum from the credit this spring.

Five times a week, she leaves her West Baltimore apartment at 3 a.m. for a two-hour bus ride to her job at a Towson hotel, where she earns less than $18,000 a year. At 11 a.m., she leaves the front desk of the Days Inn and embarks on another two-hour journey home, taking as many as eight buses in a single day.

With $3,000, she could buy a used car. And then she could look for jobs that are not served by bus routes.

"It's going to make a big difference in my life," she said this week as she waited for a bus to take her home. "I've been trying to save $1,000. But once I get there, I have to go into it for expenses. It defeats the purpose."

Matthews said she qualified for the credit for the first time this year because she became the guardian of her 14-year-old grandson after her daughter died of breast cancer. But if the refund program were expanded, she said, it would help her entire family in the years to come.

"We could do a lot with that money," she said. "My son wouldn't have to pay somebody to take him to work. My granddaughter's mother, she's trying to find a place to live. That will help her find a good place to live. My brother, him and his wife probably could use a few extra dollars. They have car notes to pay."

The complicated credit works on a sliding scale. People with large families and low income receive more than those who earn less but do not have children. A single parent with two children who earns less than $45,000 qualifies for some credit. Single people without children see the credit amount decline if they make more than $8,270, and singles under age 25 do not qualify unless they have children.

The most conservative proposal for the expansion in Maryland — the one backed by Hogan — would give the state's poorest residents $27 million over the next two years, nearly all of which state economists predict would be spent at local businesses. His plan would help those who already receive the credit; the most recent analysis estimated that more than 415,000 Marylanders do.

The Democrats' proposal goes further — it would grant a larger credit and let 355,000 more people qualify — and would cost the state $70 million a year.

Hogan's spokesman said the governor is open to a compromise.

"As a general rule, we support reducing taxes," Hogan spokesman Douglass Mayer said. "If they want to reduce taxes more than we did, we support that, although we need to know all the details."

Robin McKinney, a former social worker who runs a nonprofit that teaches financial literacy and provides free tax help to Maryland's poor, said policymakers have long debated expanding the tax credit to include poor workers under 25, many of whom are at risk of giving up on the system.

She said she tells people, "'If you can hold on and fight through this, when you file your taxes, you're going to be able to get this chunk that you can really do something with.' That gives people some hope and some incentive that working is worth it."

The unrest in Baltimore last year "gave a new spotlight" to arguments to expand the program to include younger people, she said, as well as childless workers who earn more than $14,880.

The money could be used for "a down payment on a used car or a deposit for a new apartment in a neighborhood with better schools," said McKinney, executive director of the Maryland CASH campaign. "Two thousand dollars is a life-changing amount of money for somebody to have in one year."

Most who receive the credit do not collect it for very long.

Of the 1.26 million Maryland taxpayers who claimed the credit over the past decade, 70 percent did so for three years or less, according to Department of Legislative Services analysts. That means the fortunes of 882,000 people improved enough that they were no longer considered among the state's poorest residents.

From 2003 to 2012, 40 percent of those who claimed the credit did so for just one year before they no longer qualified, analysts found.

And it helps people across the state. While the credit aids the urban poor in Baltimore, rural Somerset County had the second-highest concentration of recipients. In 2012, 28.9 percent of Baltimore residents claimed the credit. In Somerset, 27.9 percent claimed it.

"Nobody's against it," said state Sen. Edward J. Kasemeyer, chairman of the Senate Budget and Taxation Committee.

The question is how much the state can pour into the program. It is competing with a handful of proposed but costly tax cuts for retirees, small businesses, corporations and others. Lawmakers have pitched more than 100 bills to alter tax credits this year.

"We're trying to put together a package that helps everybody," said Kasemeyer, a Howard County Democrat.

Kasemeyer said Senate leaders want to keep the cost of an overall tax-cut package to between $50 million and $60 million a year. It would likely include a number of tax breaks.


To ensure that the changes to the tax code are sustainable, a smaller expansion of the Earned Income Tax Credit than is envisioned by Madaleno would need to be phased in over several years, Kasemeyer said.


"We don't want to jeopardize our future by going whole-hog in one year," Kasemeyer said.

Madaleno said any measure of expansion would help the poor and Maryland's economy.

"All of this money that goes out to these families, almost every penny gets spent in the local economy on rent or groceries," Madaleno said. "Single working women make more for going back to work. ... It's one of the few tools that we have at the state level to really impact income inequality."

A Hogan spokesman declined to say how much expansion of the credit the governor would support, but leaders in the House of Delegates suggested they wanted a bigger program than the Senate.

House Speaker Michael E. Busch, an Anne Arundel County Democrat, said that "from the House Democrats' perspective, it's the No. 1 priority. This would have more impact on the middle class than any other proposal."

In both chambers, not a single person signed up to testify against the proposed expansions.

"Nobody. Bam! It's such a good bill," said Del. Frank Turner of Howard County, a Democrat who chairs the House Ways and Means Committee. "What exactly the expansion will be, that will be negotiated."

For Matthews, receiving the credit this spring will be a windfall she had been hoping for since the engine fell out of the beat-up Toyota she affectionately called "putt-putt" about six years ago.

"I drove it until I couldn't drive it no more," Matthews said. "I wish I could find another Toyota. Or a Honda. That'd be nice. That'd be real nice."

When she gets one, her new commute would be 15 minutes.