EITC

States adopt and adapt the EITC to address local need

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Cross-posted on Brookings’ Metro Blog, The Avenue

Natalie Holmes and Alan Berube

When California passed its 2016 budget late last month, it joined a growing list of states that have recently adopted or expanded state versions of the federal Earned Income Tax Credit (EITC). First enacted in 1975, the EITC has become one of the country’s most effectiveantipoverty programs. We estimate that the federal EITC keeps millions of individuals and children out of poverty each year, reducing the national poverty rate by several percentage points. Others have shown how the EITC creates a strong incentive to work and works as a powerful tool for reducing income inequality.

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Connecting EITC filers to the Affordable Care Act premium tax credit

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EITC ACA pic for CSPAThis tax season, for the first time, tax filers who receive the Earned Income Tax Credit (EITC) may also be eligible to claim a tax credit for health insurance premiums. Created as part of the Affordable Care Act (ACA), the premium tax credit helps offset the cost of health insurance for lower- and moderate-income taxpayers who purchased coverage through state or federal health insurance marketplaces. To better understand the number and types of workers and families that are likely to be eligible for the EITC and ACA credits, and to inform outreach efforts moving forward, a new Brookings Metro report estimates the overlap between these two populations.

Read the new report>>

Fighting Poverty at Tax Time through the EITC

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Cross-posted on Brookings’ Metro Blog, The Avenue

Elizabeth Kneebone and Natalie Holmes

With tax season around the corner, thousands of certified volunteer programs across the country are gearing up to offer free tax return preparation services to millions of low- and moderate-income taxpayers, military families, people with disabilities and seniors.

In addition to free tax assistance, many of these programs invest in outreach and education efforts to make sure residents in their community know about important tax provisions they may qualify for, including the Earned Income Tax Credit and the Additional Child Tax Credit. Both of these credits for low-income working families are refundable, meaning that if the credit exceeds the taxes owed, filers can receive the remainder as tax refunds. Together, these two provisions keep millions of workers and their families out of poverty each year.
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New Analysis Shows EITC Expansion Would Strengthen Credit for Childless Workers

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By Jane Williams and Elizabeth Kneebone

For low-income working families, the Earned Income Tax Credit (EITC) is one of the nation’s most effective tools for reducing inequality and alleviating poverty. However, for low-income childless workers, the EITC is a weak or unavailable resource.

Recognizing the need to reform the EITC to better benefit childless workers, the Obama administration recently released details for how it would go about expanding the EITC. The administration’s proposal joins others from officials in both the House of Representatives and the Senate including Representative Richard Neal’s Earned Income Tax Credit Improvement and Simplification Act of 2013 and the Working Families Tax Relief Act of 2013 introduced by Senators Sherrod Brown and Richard Durbin.

Yesterday we released a new analysis estimating the impact of each of these proposals’ on low-wage workers at the state level and across the nation’s 100 largest metro areas using our MetroTax model for Tax Year 2012.

We found that:

  • Each proposal would significantly strengthen the credit for millions of workers.
  • At least 15 states would double the number of filers eligible for the childless worker credit.
  • Every major metro area would see thousands of workers benefit from an expanded EITC.

Our findings illustrate that the proposed EITC expansion would contribute a significant federal investment in low-wage workers as well as the communities in which they live. This is particularly important for our suburban poverty work.

For part of what makes the EITC effective as a poverty alleviation tool is its responsiveness to changes in the economic cycle (bolstered in recent years by targeted expansions) and to the changing geography of poverty in the United States.  As the low-income population rapidly suburbanized in recent years, so, too, did the geography of EITC recipients. Between Tax Year 1999 and Tax Year 2011, the number of filers claiming the EITC in the suburbs of the 100 largest metropolitan areas increased by 61 percent, compared to an increase of just 32 percent in the largest cities. In Tax Year 2011, 10.2 million suburban filers claimed the EITC for a total of $22.9 billion.

Modernizing the EITC by enacting the proposed expansions would ensure the credit is an effective work incentive and poverty alleviation tool for childless workers, many of whom reside in suburban communities that are otherwise ill-equipped to address growing need.

Resources

Learn about suburban poverty in your community, how innovators around the country are addressing it, and what you can do locally and nationally to take action.