First Focus Blog
Earned Income Tax Credit: a popular program giving millions of families something to look forward to after tax dayTax Policy
Taxes have been on the minds of Americans across the country these last few weeks, but the April 15 deadline has finally come and gone. With that chore out of the way, it’s time to consider a tax policy that means the difference between scraping by and falling short for millions of Americans and keeps millions of American children out of poverty. The NPR podcast Planet Money’s recent podcast episode, “Why Some People Love Tax Day,” looked the Earned Income Tax Credit (EITC), the country’s largest federal anti-poverty cash-sharing program received by almost 30 million Americans. I also dove a little deeper at First Focus, and here’s what I learned:
What is the Earned Income Tax Credit?
Individuals and families eligible to receive EITC receive one lump sum based on one’s income, age, residence, and number of qualifying children. The amount of credit an individual or family receives increases with income, phasing out after reaching higher income thresholds. Credit also increases based on the number of children the recipient has.
The program was created in 1975, but existed on a much smaller scale before the 1990s. In the early 90s, the National Commission on Children offered policy recommendations to strengthen the program and its benefit to kids, leading to a big win for kids in a substantial increase in the amount families could receive and an increase in the credit received based on the household’s number of children.
What Will It Look Like in 2013?
In 2012, 27 million Americans received EITC, a figure that should not change significantly in 2013. That means nearly 30 million Americans now have the receipt of their EITC to look forward to as we pass tax day. And this credit amount is not unsubstantial. For families with children, the average expected tax credit is this year will be $2,828 and the largest credit amount families will be able to receive is $5,891.
While Planet Money described the EITC as “surprisingly uncontroversial,” in recent years, the program has started to slide into the partisan divide. While it is still popular on both sides of the aisle, this year Congress passed a five year extension of the expansion of EITC created as a part of the 2009 American Recovery and Reinvestment Act. While the extension itself shows its popular appeal, advocates argue that these changes should be made permanent rather than just kept alive through temporary extensions. The 2009 changes to EITC alone kept 1 million kids from poverty in 2010. With these clear positive results of the 2009 EITC improvements, one can see that the lack of controversy regarding EITC is starting to give way to partisan politics as Congress failed to make these program improvements permanent.
Furthermore, when we consider the design of the program and the program’s effects, it’s not at all surprising that EITC been so uncontroversial until recently. EITC is not a one party program. The program targets Americans most in need yet it does so in a way that encourages work. Rather than giving more money to those who make less, the credit increases with income, rewarding individuals the more they work. And while this phases out after a certain income level, the phase out is gradual which encourages individuals to continue increasing their income rather than disincentives by abruptly cutting assistance once a certain income is reached.
Not only does this program appeal to the ideals of both parties, this is a program that works. It is no surprise that an extra few thousand dollars each year can have an enormous impact on low-income families. And for low-income children the impact is felt just as significantly. When combined with the Child Tax credit, EITC helps to keep 5 million children out of poverty each year. Furthermore, EITC encourages and allows parents to increase their participation in the workforce by offering them the necessary assistance and flexibility. In the 1990s, we saw a significant increase in employment among single mothers, half of which can be accounted for by the expansion of EITC during that time.
EITC has also been shown to have a positive impact on the well-being and future outcomes of children. Research links EITC to increases in infant health, school performance, educational attainment, and future earnings.
In this way, EITC has been proven to be highly successful. It helps millions of families each year stay out of poverty, improve their standard of living and invest in their future in ways that would be unavailable without the assistance. Unlike programs like SNAP that place requirements on how funds can be spent, this lump-sum credit gives families the flexibility to make responsible decision for their present and future well-being.
As the NPR podcast discussed, while families have the ability to spend the funds at their own discretion, EITC is not going to families that do not need it. These are families that struggle daily to provide for themselves– not those that are living comfortably that now have an opportunity to buy luxuries. For many families, this credit is what pushes them above the poverty line; these funds are crucial in order for them to provide what is necessary to support their physical and emotional well-being. A trip to Disney world for EITC recipient Marian Ochoa, for example, is one of the only chances she has to expose her son to the engaging and emotionally enriching experiences that a life in poverty rarely includes.
The Earned Tax Credit is an important program that helps millions of families and children stay out of poverty. It is a program that has continued to grow under both Democratic and Republican administrations because it is a program whose design is not based on partisan ideology and appeal, but rather, a smart, effective program that has proven to have an immense benefit for individuals and families.