For the next two years at least, the federal tax obligations of many American families is not expected to rise – largely due to the tax compromise package passed by Congress at the end of 2010. However, many families may not feel the intended effects of the legislation because at the same time, states and local communities still struggling from the recession (and desperate to refill their coffers) have been busy raising their rates.

There are a number of reasons for the difference in fiscal action at the federal and state level – a primary reason being the fact that the federal government can run deficits if need be, while states, with few exception, cannot. Such differences in standard operating procedure mean that federal and state policies may at times contradict one another, putting the intended benefits of some policy at risk.

Tax policy is a prime example of this type of disconnect. The federal tax bill included a number of provisions good for families with children, particularly the preservation of key improvements to tax credits such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). The EITC, in particular, is an example of successful federal policy that kept 3.3 million children out of poverty in 2009 and has been replicated on both the state and city level across the country. Currently, 24 states have their own version of the EITC to augment the benefits of the federal credit.

Yet while improvements to the federal EITC have been temporarily preserved, the status of the state EITC is uncertain, as evidenced in the unveiling of new state budgets around the country. In a recent blog post, the Center on Budget and Policy Priorities (CBPP) detailed the threat to Michigan’s state EITC. In the name of a balanced budget, the Michigan state legislature proposes eliminating or severely cutting back the state credit, which CBPP notes would affect over 700,000 low- and moderate-income families, the vast majority of which have children.

A similar situation has already taken effect in New Jersey, when Governor Chris Christie scaled back the state EITC starting this year, also ostensibly out of budget concerns – a move that the New Jersey Policy Perspective says may take up to $300 from a low-income working family on minimum wage whose annual household budget may only total $15,000 to start with. As a New Jersey newspaper editorial notes, this $300 could help families “keep the electricity on, fend off eviction, or buy the kids winter coats”.

These cutbacks at the state level come at a time when recent Census data reveals the fastest growing class in America is the working poor. In 2009, there were 45 million people – 22 million children – who lived in low-income working families. And this was an increase of 1.7 million people just from 2008. Tax provisions such as the EITC are specifically designed for the benefit of these families. The EITC encourages work and strong families by helping parents who work hard for low or minimum wage meet their children’s basic needs. And the positive effects of the EITC on children are well-documented – with a family’s receipt of the credit linked to better school achievement, among other things.

States are cutting their local EITC programs at precisely the wrong time. In an effort to balance the books, families recovering from the recession are being thrown into precarious situations once again. While there is a strong federal EITC in place for at least the next two years, the benefits of such policy may be easily eroded if attention is not paid to the contradictory and potentially harmful actions happening on the state level. Families exist in both the nation and state and so should good policy.

For more information on the Earned Income Tax credit: