A number of states are considering creating or expanding earned income tax credits (EITCs), Pew Stateline explains, an idea that has received support from both sides of the aisle. That’s great news for low- and moderate-income working families. It’s also good for the nation’s future economic prospects since state credits leverage the federal EITC’s well-documented, long-term positive effects on children. As our recent paper explains, state EITCs:
- Help working families make ends meet. Refundable EITCs provide low-income workers with a needed income boost that can help them meet basic needs and pay for the very things that allow them to work, like child care and transportation.
- Keep families working. EITCs help families that work get by on low wages, which helps them stay employed. They are also structured to encourage the lowest earning families to work more hours. That extra time and experience in the working world translates into better opportunities and higher pay over time. Three out of five who receive the credit use it just temporarily — for just one or two years at a time — while they get on their feet.
- Reduce poverty, especially among children. Millions of children in working families live in poverty, and millions of families with incomes modestly above the poverty line have difficulty affording food, housing, and other necessities. The federal EITC is the single most effective tool the nation has for reducing poverty among working families and children. It now lifts about 6.5 million people — half of them children — out of poverty each year. State EITCs build on that record.
- Have a lasting effect. Low-income children in families that get additional income through programs like the EITC do better and go farther in school. And children in low-income families that get an income boost during their early childhood years work more and earn more as adults. This is good for communities and the economy because it means more people and families on solid ground and fewer in need of help over the long haul.
That’s why twenty-five states plus Washington, D.C. have EITCs (see map). Last year, Colorado and Ohio created EITCs while Oregon and Iowa improved theirs. As a slowly improving economy boosts the fiscal outlook for states, lawmakers should follow suit and adopt or expand EITCs to help working families and children recover, too.