Policy 107 – The Earned Income Tax Credit

Policy 107

The Earned Income Tax Credit

One Sentence Argument

Expanding the Earned Income Tax Credit would lift million of Americans out of poverty in a way that’s proven to not only effectively limit poverty, but also encourage work for low-income individuals.

The Facts

The federal EITC is a refundable tax credit for low- to moderate-income working people that lifts millions of Americans out of poverty. Because the credit is refundable (and the amount is determined by a worker’s income), if it ends up being more than what the worker would owe that year in federal income tax, the government will send the difference to the worker as a refund.

The EITC is one of the most powerful anti-poverty tools wielded by the United States government, with about 10 million Americans lifted out of poverty each year as a direct result of the EITC and the Child Tax Credit. In 2016, 27 million tax filers claimed the EITC, receiving an average benefit of $2,454. A married couple with two children and an income of $40,000 for the year qualified for an EITC of $2,142 – meaning their EITC benefit was the equivalent of 5% of their annual income.

Expanding the EITC

The EITC helps millions of American families each year, but it still leaves many workers with children struggling to get, and almost completely ignores a huge segment of low-income Americans – childless workers.

Since the 1993 EITC expansion, when it first went beyond working parents to include childless workers, the amount they can receive has barely changed, only keeping pace with inflation. A working parent can be eligible for a tax credit of as much as $7,500, but the maximum credit for a childless worker is just over $500. Not only is that not enough to overcome what most childless workers’ owe in federal income tax, it’s strictly limited to those at the absolute lowest income levels, and only for workers above the age of 25.

Expansion of the credit, especially to childless workers, would be an incredibly powerful anti-poverty tool. It would lift an unnecessary tax burden off of the shoulders of up to 7 million childless workers, and would give raises to nearly 50 million households.

Watch a Video of Representative Sewell talking about the EITC:

Further Reading:

 

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