The Center's work on 'Earned Income Tax Credit' Issues


Working-Family Tax Credit Essentials, Part 5: The Impact in Your State

January 27, 2015 at 4:08 pm

Previous posts in this series on our new chart book have explained that the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC):

Our chart book also includes fact sheets with by-state data on how the EITC and CTC reduce poverty, who benefits, and how state EITCs can supplement the federal credit.  The fact sheets also give state-specific data on the impact of making the key EITC and CTC provisions permanent and of strengthening the EITC for childless adults.  Click on a state below for its fact sheet.

Working-Family Tax Credit Essentials, Part 4: Bipartisan Support for Helping Childless Workers

January 23, 2015 at 2:05 pm

Today’s post on our chart book on the pro-work Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) focuses on the most glaring hole in the EITC: it largely excludes childless adults and non-custodial parents.  President Obama and House Ways and Means Chairman Paul Ryan (R-WI) have advanced important proposals to address this problem, and, as Chairman Ryan said this week, his proposal “basically mirrors the president’s proposal.”  Senators Sherrod Brown (D-OH), Richard Durbin (D-IL), Patty Murray (D-WA), and Jack Reed (D-RI) and Reps. Danny Davis (D-IL), Richard Neal (D-MA), and Charles Rangel (D-NY) also have introduced key proposals.

The EITC misses many low-income childless workers entirely and provides only minimal help to many others.  All childless workers under age 25 are ineligible for the credit and the average credit for eligible workers between ages 25 and 64 is only about $270, or less than one-tenth the average $2,900 credit for filers with children.  A childless adult working full time at the minimum wage is ineligible.

As a result, childless adults are the only group that the federal tax code taxes into — or deeper into — poverty (see first chart).

Providing a more adequate EITC to low-income childless workers and lowering the eligibility age would raise these workers’ incomes and help offset their federal taxes.  Also, some leading experts believe that an expanded credit would begin to address some of the challenges that less-educated young people face, including low and falling labor-force participation rates, low marriage rates, and high incarceration rates.

The Obama and Ryan proposals would lower the age floor from 25 to 21 and expand the EITC for childless workers by doubling its phase-in rate, from 7.65 cents per added dollar of income to 15.3 cents (to fully offset workers’ payroll taxes on this income).  And they would raise the income levels at which the credit starts phasing out and phases out completely, as our paper explains.  These changes would make a big difference for childless workers (see second graph).

Working-Family Tax Credit Essentials, Part 3: Making Key Provisions Permanent

January 21, 2015 at 1:14 pm

Our last post on our new chart book highlighted ground-breaking research suggesting that the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) help families at virtually every stage of life.  Today, we’ll explain why making several key CTC and EITC provisions permanent should be a top priority for Congress.

In 2009, policymakers lowered the earnings needed to qualify for a partial CTC, thereby expanding the credit for millions of low-income working families and making other families newly eligible for a partial credit.  They also raised the income level at which the EITC begins to phase down for married couples to reduce the marriage penalty some two-earner families face in the EITC.  And they boosted the EITC for families with more than two children to help them cover their higher living costs.

But unless policymakers act, these provisions will expire at the end of 2017, causing millions of low-income working families to lose all or part of their CTC and EITC.  More than 16 million people, including almost 8 million children, would be pushed into — or deeper into — poverty.

The affected families work in a diverse range of jobs, from nurses to custodians, as this table shows.

If the provisions expire:

  • Not one penny of the $14,500 in earnings of a full-time, minimum-wage worker would count toward the CTC. The earnings needed to qualify for even a tiny CTC would jump from $3,000 to $14,700.  The earnings needed to qualify for the full CTC would rise from $16,330 to more than $28,000 for a married couple with two children.  A family with two children earning $20,000 would see its CTC cut from $2,000 to $795.
  • Many married couples would face higher marriage penalties and cuts to their EITC. Currently, to reduce marriage penalties, the income level at which the EITC begins to phase out is set $5,000 higher for married couples than for single filers.  After 2017, it would only be $3,000 higher than for single parents, which would shrink the EITC for many low-income married filers and increase the marriage penalty for many two-earner families.
  • Larger families would face a cut in their EITC. After 2017, the maximum EITC for families with more than two children would fall by over $700, to the level of the maximum EITC for families with two children. 

The next post in this series will highlight the need to strengthen the EITC for the only group the federal tax system taxes into poverty: childless workers.

Working-Family Tax Credit Essentials, Part 2: The Credits’ Lasting Benefits

January 16, 2015 at 1:11 pm

Our first post in this series introduced our chart book on the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC), focusing on their well-known benefits of encouraging work and reducing poverty.  Today, we’ll highlight recent ground-breaking research suggesting that the EITC and CTC help families at virtually every stage of life.

As the chart explains, starting from infancy — when higher tax credits are linked to more prenatal care, less maternal stress, and signs of better infant health — children who benefit from tax credit expansions have been found to do better throughout childhood and have higher odds of finishing high school and thus going on to college.  The education and skill gains associated with the CTC and EITC likely keep paying off for many years through higher earnings and employment, researchers say.

This evidence is a major reason why it’s critical to make key provisions of the credits permanent, as our next post in this series will explain.

Working-Family Tax Credit Essentials, Part 1: Overview

January 13, 2015 at 4:43 pm

As Congress returns to work this week, a key area of potential bipartisan agreement is strengthening two vital tax credits for working families: the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC).  This series of posts will highlight our new chart book on the credits, which encourage work, help offset the cost of raising children, and lift millions out of poverty.  (Roughly half the states also have their own EITCs to build on the benefits of the federal EITC.)

The EITC and CTC have historically received bipartisan support.  President Obama has championed measures to strengthen the credits and Paul Ryan, ascending this year to chairing the House Ways and Means Committee, has highlighted the EITC as one of the most effective anti-poverty programs.

The first step in strengthening the credits is to make permanent key EITC and CTC features that will expire at the end of 2017, causing millions of low-income working families to lose all or part of their credits.  More than 16 million people in working families with low or modest incomes, including 8 million children, would fall into — or deeper into — poverty in 2018 if these provisions expire.

In addition, President Obama and Chairman Ryan have nearly identical proposals to fill a glaring gap in the EITC by boosting the credit for “childless workers” — that is, adults without children and non-custodial parents.  Childless workers receive little or nothing from the EITC.

Substantial research over the past 15 years supports these changes.  The EITC significantly increases recipients’ work effort, numerous studies have found, and the EITC and CTC together lift 9 million people out of poverty — more than any other federal program besides Social Security — while making 22 million others less poor (see chart).  The credits lift more children out of poverty than any other program.

On top of these direct impacts, recent research suggests that income from these credits has benefits at virtually every stage of life for children in recipient families — improving school performance, college enrollment, and work effort and earnings in adulthood.

Policymakers should make strengthening the EITC and CTC a top priority in 2015.

Check out our chart book and other EITC and CTC resources for more!

Stay tuned.  The next post in this series will highlight the growing body of research that suggests the EITC and CTC provide benefits at virtually every stage of life.