New Mexico’s Working Families Tax Credit (WFTC) is an effective but underutilized tool for helping families that work stay out of poverty. It also helps address the growing gap in income between the wealthiest New Mexicans and low-income families, and the inherent unfairness in our state tax system. Expanding this credit would do even more for New Mexico’s struggling families as they try to work their way into the middle class.
In the just-finished legislation session, lawmakers considered legislation that would have increased the credit. Like other legislation to address our state’s high rate of poverty—increasing the minimum wage and investing more funding in programs for our youngest children—the legislation to increase the WFTC did not pass.
Far too many working New Mexicans struggle to support their families and avoid poverty, especially in the current economy and given the prevalence of low-wage jobs. New Mexico not only has one of the highest rates of poverty in the nation, it also has the highest share of working families with low incomes and the worst income gap between the rich and the poor. As we outlined recently, the WFTC is based on the federal Earned Income Tax Credit—a credit that only goes to families that work. The federal EITC is the nation’s most successful tool for reducing poverty among working families and children. It helps people who work hard meet basic needs and stay off welfare. In addition, the income boost it gives families to meet their basic needs helps young children do better and go farther in school, giving them a better chance to thrive and succeed as adults. It also provides support for returning veterans making their way back into the workforce and for working families trying to stay afloat in tough economic times. The federal EITC kept 39,000 New Mexicans out of poverty and benefited 300,000 New Mexico kids in 2010.
New Mexico’s Working Family Tax Credit builds on that success, but it could do more if we increased its value. An increase of 5 percent would have meant investing just $25 million to support our hard-working low-income families. That’s a relatively modest investment by the state that would have meant a lot to New Mexico families doing the right thing, but struggling to get by on low wages.
When low-income working families receive their EITC and WFTC refunds, it’s not only good for those families, it’s good for the entire state. These dollars go to families that are most likely to spend it, and right in their own communities, giving businesses a boost. Another way it helps businesses is by enabling their workers to pay for things that keep them working, like transportation and child care.
The credit also make the state’s tax system a little more fair for working folks at the bottom. Surprisingly, our lowest-income households pay a greater share of their income in state and local taxes than do higher-income households. Those making less than $17,000 a year pay more than 10 percent of their meager incomes in state and local taxes. Meanwhile, New Mexicans who make more than $300,000 pay less than 5 percent of their incomes in those same taxes. This huge disparity exists even after the current value of the WFTC is taken into account. An increase in the credit would help to reduce the gap in how our tax system treats the rich and poor.
The need to support New Mexico families and children is greater than ever—we must make it our highest priority. That means increasing the WFTC, our best tool for reducing poverty and combating inequality while rewarding work.