by Amber Wallin
March 10, 2015

Note: These remarks were given as expert witness testimony to NM Legislature’s House Ways and Means Committee on HB 293: Increasing the Working Families Tax Credit, February 16, 2015

New Mexico’s Working Families Tax Credit is based directly on the federal Earned Income Tax Credit (EITC), which was enacted in 1975. New Mexico’s credit was enacted in 2007 at 8 percent of the value of the federal EITC and raised the following year to its current value of 10 percent of the EITC. Both credits are refundable income tax credits available to low- and lower-middle-income workers. Each year the EITC injects about $500 million into New Mexico’s economy, and the Working Families Tax Credit provides an additional $50 million in benefits to New Mexico families.

These credits are widely supported as bipartisan, common-sense, anti-poverty, and pro-business measures that have a high return on investment because they are good for families and kids, and they are good for businesses and the economy.

First, we know that these credits are great for New Mexico’s kids and families. Every year, 200,000 New Mexico workers and the 300,000 New Mexico kids they are raising benefit from the credits, and 97 percent of the value of the credit goes to working families with kids.

The families use these credits in different ways. For some, the credits are lifelines; and each year, these two credits alone lift more than 40,000 New Mexicans—half of them children—above the poverty line. Other families use them for support during tough, but temporary, economic times (things like the birth of a child or the loss of a job), and three out of five workers claim the credits for only one to two years. The credits are used to help families afford basic necessities as well as, research shows, big expenditures that they otherwise couldn’t afford such as, and most commonly, major car repairs. Other recent research shows that in the two months following when they receive these credits, workers are much more likely to purchase fresh produce and fresh fruits and vegetables, and so we know that the credits help families eat healthier as well.

In addition to being good for New Mexico families, we also know that these credits are good for New Mexico’s businesses and economy. Part of this is because extensive research shows that these credits encourage work and help keep people in the workforce. They also help low-wage workers keep more of their income, and that income, as well as the credits themselves, are very likely to be spent quickly and locally.

Business owners strongly support these credits not only because they help keep cash circulating and being spent, but also because workers who are better able to afford things like reliable transportation and reliable child care are more likely to be reliable employees.

But as great as we know that these credits are, we also know that New Mexicans face some big challenges. The most recent Census data show that New Mexico is ranked next to worst on overall poverty; we’re also next to worst on child poverty. KIDS COUNT ranks New Mexico 49th out of 50 on overall child well-being; and New Mexico has more working poor families per capita than any other state in the nation. New Mexico workers are facing an uphill battle. Increasing New Mexico’s Working Families Tax Credit is one proven and effective way to give these workers a hand up, while also still continuing to support our kids and our businesses.

Amber Wallin is a Research and Policy Analyst with NM Voices for Children.