Making the Tax Code Work for Low-Income Families
This was also published at Momrising.org.
Today is Tax Day, marking the deadline for Americans to file their taxes with the Internal Revenue Service (IRS).
For many families living below the poverty line, the arrival of Tax Day means they can usually count on receiving money back from the government to use for everyday expenses such as rent, groceries, transportation to work, and even necessities such as diapers for young children. Many families have already earmarked this money before they receive it to help catch up with unpaid credit card or medical bills, or to make necessary car or home repairs.
This money in the form of tax credits is critical to reducing child poverty in the U.S. and supporting a family’s economic mobility. It supports parents’ work participation and provides income that supports healthy child development. In fact, the tax code is one of the most powerful tools we have in combating child poverty. Combined, the earned income tax credit (EITC) and the child tax credit (CTC) deliver over $120 billion in tax credits to families. In 2015, the EITC and CTC lifted 5.1 million children out of poverty.
New evidence points to the long-term benefits for families with children who claim these credits, which include improved maternal and infant health, higher test scores and academic achievement for students in elementary and middle-school and makes it likelier for a child to attend college and earn more as an adult.
Despite the power of these tax credits in combating child poverty, there are many reforms needed to the tax code to reach more children and better support families in their pursuit of economic mobility. This is particularly true for families living in deep poverty, who often receive a limited benefit through the tax code due to their low or zero tax liability, as well as families with young children, who face the highest expenses at the same time their young children are going through critical stages of development.
In March, the U.S. Child Poverty Action Group (CPAG) released the report Family Tax Policy: A Path Forward to Lifting Child out of Poverty, which offers lawmakers a blueprint for using the tax code to improve the standard of living for children in the U.S. and build upon the successes of the EITC, CTC and other credits, exemptions and exclusions.
Currently, there is a lot of discussion in D.C. around the potential for comprehensive tax reform this year. In theory, this presents an opportunity for improvements to family tax credits, but likely poses a larger threat that could result in harmful changes that end up reducing the after-tax income of families.
Tax credits for families have always been a bipartisan issue because their ability to support work participation and reduce poverty is clear. Child and family advocates from all sectors must come together to ensure that any tax reform package a) does no harm to children and families living in poverty and b) has the overall result of strengthening the tax code’s ability to reduce child poverty and boost family economic mobility.
Read the Family Tax Policy white paper to learn how tax code can be strengthened for low income families and children.