When Reyna Bonilla lost her job cleaning hotel rooms in 2020 at the start of the pandemic, she used tax credits and other pandemic relief to chip away at past-due rent so she and her two children could stay in their Koreatown apartment in Los Angeles.
This year things are different. Bonilla cleans homes a few days a week but only makes about $10,000 a year. Most of her pandemic aid has phased out, so she struggles to keep up with expenses.
Add to that, her youngest child turned 6 in November, making Bonilla ineligible for California鈥檚 Young Child Tax Credit. Her tax refund will be $1,083 less this year, squeezing her already tight budget.
鈥淪ometimes I say I鈥檓 going to save money and I start saving,鈥� she said, 鈥渂ut the prices go up and I can鈥檛 do it anymore.鈥�
Advocates say California鈥檚 tax credits are more crucial now, as low-income families like Bonilla鈥檚 struggle to financially recover from the pandemic as other government relief programs end.
For instance, the federal government in 2020 to send advanced monthly payments to low-income families with children and, for the first time, included very low-income earners. It helped , but the federal credit expansion ended in December 2021.
Democratic Assemblymembers of Gardena and of Los Angeles recently authored two bills that would expand California鈥檚 and its .
Combined the bills would cost about $1.1 billion annually, in a year the state is predicting a .
Who gets earned income, young child tax credits?
鈥淭he need for lower-income tax credits is as dramatic as ever,鈥� said Teri Olle, California campaign director of the Economic Security Project, a national nonprofit based in New York.
鈥淕as prices, food prices 鈥� none of that is better than it was before the pandemic. Now a lot of these supports that have been in place are expiring and people are left with higher prices, a higher cost of living and nothing to support them. 鈥�
Currently the California Earned Income Tax Credit of $1 to about $3,400 to tax filers who earn as much as $30,000 in annual income.
In 2022, 3.6 million Californians received the state鈥檚 earned income tax credit, according to the Franchise Tax Board. It had a modest impact; about 83% of those filers got less than $300 in state tax credits.
That鈥檚 partly by design. The state earned income tax credit is structured to provide an incentive for people to work, so it phases in more cash as earned income increases to $30,000.
For instance, someone who earned only $200 in 2022 and has three children would receive $67 in earned income credit, while someone who made about $9,000 with three children would receive $3,417.
Those who make $30,000 receive $1, regardless of how many children they have. Those who earn more don鈥檛 qualify.
It targets working individuals with dependents who are most in need. But it leaves out many people who can鈥檛 work because they are caring for loved ones and single filers who don鈥檛 have dependents but struggle to get by, advocates said.
鈥淚t doesn鈥檛 go far enough, especially in the economy we find ourselves in,鈥� Gipson said.
Raising minimum child credits
His would raise the minimum credit to $300 from $1, regardless of number of dependents, as long as a recipient makes less than $30,000 a year.
On the other hand, California鈥檚 Young Child Tax Credit currently gives $1,083 to filers with a dependent under the age of 6. Once a family鈥檚 youngest child turns 6, the family no longer qualifies for the credit.
厂补苍迟颈补驳辞鈥檚 would enable tax filers with dependents who also qualify for the state Earned Income Tax Credit to continue qualifying for the young child tax credit after the youngest child ages past 6. Those families would keep the child tax credit until the child reaches 18, or as old as 23 if they are a student.
Families with a dependent with disabilities also would qualify for the young child tax credit regardless of their dependent鈥檚 age.
Santiago said the proposal is a 鈥渕odest鈥� ask that would greatly benefit families that suffered the biggest financial losses during the pandemic.
鈥淭his program is one of the most effective anti-poverty programs we have,鈥� he said. 鈥淲e can expand the current program and help more people than have ever been helped.鈥�
The young child tax credit bill would benefit 700,000 to 1 million more children each year, said Monica Lazo, a senior policy manager of Golden State Opportunity, an anti-poverty organization.
Lazo believes there is ample support for stretching California鈥檚 tax credits.
鈥淭he will is there,鈥� she said. 鈥淲e are in a recession, but there鈥檚 a lot of folks that always come out unscathed 鈥� because they have certain tax credits those of us in the working class don鈥檛 have access to.鈥�
鈥楨ssential workers鈥� could benefit
Many very low-income workers were forced to go to work during the pandemic, she said, while higher earners often could work from home.
鈥淭hese are people who are helping our local economy; we declared them essential,鈥� she said. 鈥淪o this is a way we can help them and really prove to them they are essential.鈥�
Research shows that people spend tax credits almost immediately on basic needs, which means the money immediately goes back into the economy. For every $1 of tax credit, $1.70 is invested in a local economy, said Anna Hasselblad, director of public policy for United Ways of California.
鈥淲here you鈥檙e going to see the greatest economic stimulation and impact is if you invest it in folks with lower incomes,鈥� Hasselblad said. 鈥淭hey鈥檙e going to put that money to work immediately.鈥�
Bonilla said she has spent her tax credits on electricity bills, clothing and shoes for her children. If she were to get an extra $1,083 in child tax credits each year, Bonilla said, she would save it for future expenses for when her daughter starts college.
鈥淭here wouldn鈥檛 be so much worry. I would have extra money,鈥� she said.
Expanding California鈥檚 earned income tax credit would benefit people of color the most because they make up three-quarters of eligible workers in the state, said Alissa Anderson, policy researcher at the California Budget & Policy Center, a research nonprofit.
It also would simplify the process of claiming tax credits; the Franchise Tax Board would more easily identify qualifying workers and automatically send funds, Anderson said.
Seeking bipartisan support
Tax credits traditionally receive but the two bills may face a challenge in the projected state budget deficit. If passed, the proposed earned income tax expansion would cost about $460 million annually and the proposed expanded youth tax credit would cost about $700 million annually.
Both bills are new versions of a proposal last year which would have provided a to families who received California鈥檚 earned income tax credit.
That proposal, also sponsored by Santiago and anti-poverty organizations, included a permanent increase of the earned income credit鈥檚 $1 minimum payment to $255.
鈥淲hen you recognize the contribution people are making and allow them to reinvest that money themselves, instead of allowing government to take that discretion, it鈥檚 a better pathway.鈥�ASSEMBLYMEMBER TOM LACKEY, REPUBLICAN FROM PALMDALE
Last year, the state had a projected surplus of $31 billion. But as inflation rose, other state priorities arose, such as the 鈥渕iddle class tax refund鈥� that gave households $9.5 billion in financial relief.
Santiago pulled the bill from the Senate Governance and Finance Committee because it did not have enough votes to pass, a spokesperson for Santiago said.
Assemblymember , a Republican from Palmdale, said the long-term benefits of tax credits outweigh the short-term financial challenges. Lackey co-authored the earned income credit bill and supports the young child tax credit expansion bill.
鈥淭he Republican Party believes in fiscal responsibility,鈥� he said. 鈥淲hen you recognize the contribution people are making and allow them to reinvest that money themselves, instead of allowing government to take that discretion, it鈥檚 a better pathway. It鈥檚 the people鈥檚 money.鈥�
State Sen. and Assemblymember , Democratic chairpersons of the budget committees, declined to comment on the feasibility of the bills.
The Senate it intends to protect the state鈥檚 earned income tax and young child tax credits from budget cuts and would support the tax credits once the economy improves.
Is it worth it?
Advocates say there鈥檚 plenty of evidence that spending more via tax credits pays dividends. Studies show tax credits are associated with , higher educational attainment and later in life.
Households receiving such payments had and were less likely to rely on payday loans, pawn shops or on selling blood plasma, according to a Brookings Institution study.
A month after the child tax credit payments stopped, joined the nation鈥檚 poverty ranks, according to a Columbia University study. The national child poverty rate went from 12.1% to 17% from December 2021 and January 2022.
That includes who floated above the poverty line thanks to the tax credit, according to the Center on Budget and Policy Priorities, a Washington, D.C., think tank.
Hasselblad, of United Ways of California, said the proposed expansions of the earned income and child tax credits are 鈥渃omfortable鈥� compromises to request from the state.
鈥淚t鈥檚 a lot of money; we鈥檙e not pretending otherwise,鈥� she said. But 鈥渢here鈥檚 an immediate return on investment.鈥�
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