California Launches Improved Reverse Income Tax Scheme

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California’s welfare system (EITC) includes subsidies sent annually for people living without income and that’s about to change. Under new rules the money given to people who earn less than minimum wage will be sent monthly. This is really good since it provides a stable, reliable, and regular sum every month; in theory this will reduce stress for the recipients.

The plan is more like reverse income tax than it is universal basic income. Regardless, it’s good to see one the world’s largest economies delivering financial care in a more efficient manner.

“The typical pattern with the EITC is that you get deeper and deeper into debt over the course of a year,” Ruben says, “and then you use the big payment at tax time to try to pay everything off and break even.” Giving people the option to receive the credit on a monthly basis will help people plan their budgets on a more immediate basis. Benefits like food stamps are delivered monthly, so families receiving both will have a more accurate sense of their financial landscape. And in months when a household finds itself on more stable financial footing, they might be able to put some of the tax credit money aside in savings. “What we’re seeing is the idea of the importance of a steady drumbeat of financial security throughout the year,” Ruben says.

Newsom’s budget proposal aims to tackle these challenges. It will raise the household income threshold to over $30,000 (or what someone would take home working full-time at the projected $15 per hour minimum wage) to include more families. And the expanded funding will grant parents with children under six an additional $500 per year. That may not seem like a lot, Ruben says, but in focus groups run by the ESP over the past year, one woman said anyone who looks at that money and responds in that way “has never had to choose between paying rent and buying food.”



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