A Tax Time Spotlight On Tax Credits
Tax time offers a good opportunity to take a close look at the range of tax credits designed to alleviate poverty in this country, including the well-known Earned Income Tax Credit (EITC). A new Center on Budget and Policy Priorities (CBPP) report explains the far-reaching and long-lasting effects of the EITC — from income, to education, to health.
While policymakers across the political spectrum have long lauded the EITC۪s immediate anti-poverty impact, the credit۪s future is far from assured. Recent improvements to the federal EITC are scheduled to expire in a few years and several state EITCs have been reduced or left to expire. For these reasons, the CBPP report comes at a critical juncture in the debate around tax credits for working families.
The new report released last week outlines some specific benefits of the EITC and the Child Tax Credit (CTC). These include short-term earnings growth for workers, long-term earnings growth for adults who benefitted from the EITC as children, school performance boosts for the children in recipient families, higher college attendance among youth beneficiaries, and promising indications that mothers who receive the EITC have healthier infants.
The report also updates more established findings that the EITC encourages work, especially among single mothers. But new research takes this employment boost one step further, suggesting that by boosting work and earnings, the EITC likely also increases future Social Security benefits.
This research arrives at a time when several state EITCs are facing proposed cuts. According to The News & Observer, North Carolina legislators recently passed a law to let the state EITC expire. Last year, Michigan enacted a cut to the state EITC, reducing it from 20 percent to 6 percent of the federal level. Kansas recently passed legislation, now sent to the Governor, which reduces the state EITC from 17 to 9 percent of the federal EITC. Supporters of these cuts often point to the need to save money in state budgets, and at least one state plans to use these savings to fund other tax relief programs.
Nationally, the EITC and CTC expansions approved in January with the fiscal cliff agreement were extended only five years, even as other tax provisions were made permanent. There is, however, a proposal in Congress to make the expansions permanent.
These debates at the state and national levels will be critical for poor people in the months ahead. It۪s essential that quality research play a role in these conversations.
Posted by Sarah
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Here at Out of the Spotlight, we offer a behind-the-scenes look at the latest news and information essential to anyone working to fight poverty. From key political appointees to clashes over policy, we cover the news that doesn’t always make the evening news. Check out Out of the Spotlight for our take on the twists and turns of the latest political developments and their impact on poverty reduction. Topics and ideas are welcome! Just contact mlaracy@aecf.org or watersboots@hotmail.com.