Watchdog Group Worries Budget May Lack Funding For Earned Income Tax Credit

A state budget watchdog group says there may not be enough money in the next biennial budget to fund a program that provides tax credits for poor working families.

Jon Peacock of the Wisconsin Budget Project said there could be a $55 million hole in the proposed budget for the state Department of Children and Families. The money would be taken from an annual federal block grant that, among other things, funds the state’s Earned Income Tax Credit.

The tax credit is strictly for families with children who are working and make less than $46,000 in a year. It puts extra money in their pockets so they can make work pay. The tax credit had strong bipartisan support for the past several decades, and President Ronald Reagan called it the most effective anti-poverty program ever.”

Peacock said the state has been playing what he calls a “shell game” by using the federal block grant to offset state tax cuts and cover other holes in the budget. He said that this year, the Department of Children and Families is asking the Department of Revenue to fill the projected gap with General Purpose Revenue from state tax collections instead.

“This block grant has been frozen for 20 years,” said Peacock. “There’s not enough to go around. They need to hold on to more of it, and state policymakers need to step up and use state funding instead of that federal funding to finance the Earned Income Tax Credit.”

Peacock said a similar hole existed in the last budget cycle for the DCF, but temporary federal funds were found to cover the the programs that were affected. He said that this year, it’s not clear where those funds will come from.

Phone calls and emails to the Department of Revenue and the DCF for comment were not immediately returned.

Correction: The original version of this story said that temporary funds were found in the last budget cycle to help cover the state’s Earned Income Tax Credit. However, the temporary funds were in fact used to cover shortfalls in other programs overseen by the Department of Children and Families, not the EITC.

Clarification: Language in this article has been changed to reflect that the tax credit that may be affected is the state EITC, not the federal EITC. Language has also been changed to reflect that the federal grant in question helps fund a number of programs, not just the EITC.