Increase earned income tax credit and link to inflation
The implementation of HB 285 would have a significant impact on state tax laws, particularly in relation to provisions concerning the earned income tax credit. By linking the state credit to inflation, the bill aims to maintain the purchasing power of low-income families, soften the impact of rising costs on taxpayers, and incentivize work among eligible populations. Additionally, the retroactive applicability clause of the bill suggests that any taxpayer who qualified for the federal credit in tax years beginning after December 31, 2022, could potentially receive an adjusted benefit under this new system.
House Bill 285 aims to revise the earned income tax credit for residents of Montana by increasing the credit amount to 60% of the federal earned income credit. In addition to this increase, the bill includes a provision for annual adjustments based on the Personal Consumption Expenditures Price Index (PCE), allowing the credit to rise with inflation. This may provide additional financial relief to low-income taxpayers over the years, making the tax system more responsive to standard living expenses and economic conditions.
While the bill has garnered support from various legislators who view it as a necessary update to tax policy aimed at helping working families, contention may arise from concerns over long-term budget implications. Critics might argue that increasing the credit without corresponding cuts in other areas could strain state revenues. Additionally, some may express skepticism regarding the sufficiency of the inflation adjustment mechanism and whether it will truly align with actual living costs faced by taxpayers.