A tax credit funded by TANF can get Mississippi working again

October 17, 2022

By Shad White

Mississippi is facing a serious challenge: a labor shortage. I talk to employers from every corner of the state, and they are having trouble finding the help they need. As a result, the burden for making our economy hum falls on the smaller and smaller group of people who do work.

The labor shortage is a nationwide problem, but in Mississippi it’s even more acute. Our labor force participation rate — the percentage of adults who are working or are looking for work — is worse than every other state except West Virginia.

The good news is there is a way to address our labor shortage. We can encourage people to enter the workforce through something called the Earned Income Tax Credit, or EITC. The EITC is simple. If you go from being unemployed to being employed, the EITC provides a tax credit to you. That’s why they called it “earned” — you’ve got to work to earn it.

As you make more money at your job, the tax credit increases. Eventually the tax credit plateaus and then goes to zero. The idea is that the EITC provides an incentive to get moving, go to work, get out of poverty and get off government assistance.

Mississippi does not have an EITC, but we have the money to implement this now with no tax increase necessary. Mississippi receives millions of dollars every year in TANF funds from the federal government. TANF, or Temporary Assistance for Needy Families, is more commonly known as welfare. At this very moment, the state has access to a large pool of available TANF funds. And TANF money is allowed to be spent on an EITC.

TANF may ring a bell to some readers, because it’s become famous—or infamous—in Mississippi in the last two years. In 2020, the auditor’s office uncovered the largest public fraud case in state history, and it involved TANF money. The investigation revealed for the first time that tens of millions of dollars of TANF funds had been misspent. The auditor’s office arrested six individuals for their role in that fraud. Five have pleaded guilty, including the agency head who handled TANF funds. Several others are facing lawsuits from the state, which is seeking repayment of those funds.

While those criminal and civil cases work their way through the courts, it’s important to think about better ways to spend TANF money. The TANF fraud in Mississippi happened because the state gave large chunks of the money to a nonprofit to deliver services to the poor, and then that nonprofit defrauded the public. Instead of these large grants, the money would be better spent on direct tax credits to people if they join the workforce, like the EITC.

Tons of studies have been done on EITCs. They’re proven to work. Economists agree that EITCs are one of the best ways to improve the economy and help working people. What’s more, implementing and administering an EITC costs virtually nothing because it’s as easy as adding one line to a state income tax form.

That secret’s out, too. Other states, from Maine to Louisiana, have adopted the EITC. In total, 29 states have a program like this, and 20 of those states use their TANF money to fund the tax cut. Mississippi needs an EITC just to keep up.

Now is the time to act to put the pool of TANF money we have into action. The EITC would directly attack a critical problem facing the state. More people working means stronger families, more tax revenue, and a better economy. Policymakers should put money into the hands of working people and get Mississippi moving forward.

Shad White is the 42nd State Auditor of Mississippi