How Chicago can increase economic security for those who need it most - Metropolitan Planning Council

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How Chicago can increase economic security for those who need it most

Revisiting city tax policy can boost the incomes of up to 1 million of Chicago's working residents 

Flickr user Eric Allix Rogers (CC)

Based on an analysis of EITC eligibility in 2014, South Lawndale had among the highest number of EITC eligible households.

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More than 460,000 Chicagoans lived in poverty in 2018. With cost of living on the rise, and housing prices in particular growing much faster than incomes, it’s easy to see how many families are struggling to make ends meet. These disparities are even greater when you look at incomes for people of color: over 27% of Black families and 24.5% of Latinx families in Chicago lived in poverty in 2015. For anyone invested in Chicago’s future, what can be done to overcome this stubborn income inequality?

Proposal: A City-Based Earned Income Tax Credit

Fortunately, researchers consistently find that one policy does effectively promote economic security for working families: the federal Earned Income Tax Credit (EITC), a key component of our national safety net. In 2018 alone, the EITC program helped lift 7.9 million Americans out of poverty. In fact, this program is so successful that over 29 states have adopted their own state-level EITC policies. A few cities, like New York City and Washington D.C., have even instituted programs to leverage state and federal success. 

Taking into account the impact EITC has had in other states and cities, how might Chicago follow suit? A city-based EITC could leverage existing federal and state programs and help address the stagnant income inequality that Chicago faces. Establishing a local EITC is a core recommendation included in the Metropolitan Planning Council’s Our Equitable Future roadmap for addressing inequality in the Chicagoland region. Earlier this year, the Chicago Resilient Families Initiative Task Force reached the same conclusion. In a February 2019 report on actions the city could take to empower greater financial stability for more Chicagoans, the Task Force set forth a bold vision that included a proposal for a city-level EITC.

Thankfully, this proposal could work even in the absence of a city income tax. Following the lead of New York City or Montgomery County, MD, a Chicago EITC could be administered through the state’s income tax process. Since Chicago does not have an income tax, it would instead send reimbursement funding to the state--something it already does for other streams of revenue and funding.

New Report Models Policy Options

Last month, the movement for a City EITC was pushed even further. The Institute for Tax and Economic Policy (ITEP) released a report assessing six different models for implementing a local EITC program. These models varied in scope, from adapting formulas instituted in New York City and Washington D.C., to the broadly inclusive and ambitious proposals set forth in the Resilient Families Task Force report.  

These findings are a testament to the potential impact of a local EITC program. On the more expansive end, which would include expanding coverage to include full-time caregivers of qualifying dependents, a City EITC could put $588 million back into the pockets of over 1 million Chicago families per year. On a more modest scale (similar to the New York City program), it would give back $41 million to over 540,000 working families. Either way, a significant number of our city’s residents would clearly benefit from a City EITC, with positive economic impacts landing locally as well. These boosts to low-income families’ financial stability would have immediate, tangible benefits for neighborhood businesses, housing stability, and access to health care, among other improvements. In fact, research shows that children of EITC recipients benefit from improved birth outcomes, health, education and earnings attainment.

A Chicago EITC Would Address Income Inequality

The added value of a city EITC program is clear and the roadmap is already in place: ITEP's analysis highlights the options for designing a robust City EITC, from determining credit value, to setting income eligibility and defining applicable individuals (for instance, including unpaid family caregivers). 

A local EITC program would also help rectify income inequality in the city. Based on an analysis of EITC eligibility filing in 2014, West Lawn, Ashburn, South Lawndale and North Lawndale had the highest number of eligible EITC households. If Chicago had an EITC, assuming a filing rate on par with the state’s (79%), we estimate that residents in these four areas could receive an additional $11 million in credit beyond their federal and state returns (depending on program design). 

MPC is committed to exploring the expansion and modernization of EITC and other policies to advance economic security and build a more equitable Chicago region.

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