In just the last few years real progress has been made in reducing the tax burden on the working poor and near-poor in Virginia. We just have to go back to 1999 to reference a time when Virginia ranked near the top in the country in the tax burden it placed upon poor people. But in 2000, the Low Income Tax Credit was devised which created a $300 credit for each member of a family earning poverty wages, effectively eliminating their income tax burden. While this was a huge development, it still didn't address the woes of families just above the federal poverty line and it didn't provide a phase-out which made for absurd practical results. For the sake of explanation, imagine the federal poverty line was $10,000. If a person made $10,001 they were clearly no better off, but because of that dollar, suddenly they were ineligible for the tax credit.
In 2004, Governor Warner's tax package did an amazing job of reforming the tax system to reward work. The budget Warner passed increased the filing thresholds dramatically, increased the personal exemption, and increased the standard deduction for married couples. But perhaps more importantly the bill created, a new nonrefundable State Earned Income Tax Credit equal to 20% of the national EITC which was made effective last year. This credit provides a credit to those not just in poverty but to those who are technically not impoverished, but still struggling to make it.
I am happy about the progress we've made, but to a certain extent it only seems like we've come so far because we've had so far to go. We can do a lot more to reward work and create opportunity for hard working people. The next step is to make our tax credit refundable. A refundable credit would provide a real reward to those amazing people that go to work day in and day out yet are still struggling. It would go beyond the nonrefundable credit which really just acts to keep the government from adding insult to injury. It would literally lift families out of poverty and struggling financial conditions, and allow them to reach their fullest potential. Making the EITC refundable would empower those thousands of families. And so I suggest it be called Virginia's EMPOWER (EITC Means People's Own Work Earns Rewards) Act.
This EMPOWER Act would cost approximately $120 million annually (from a budget of approximately $35 billion). That's less than the amount of lost revenue from the estate tax repeal.