BEYOND THE NUMBERS
The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) together lifted 9.8 million Americans out of poverty last year and made 22.0 million others less poor, CBPP analysis of new Census data shows. The data allow us to measure of the impact of the entire credits — including both the refundable and non-refundable pieces of the CTC, in addition to the EITC.
Policymakers can further these credits’ effectiveness at reducing poverty and improving opportunity by expanding the meager EITC for workers not raising children in the home and expanding the CTC for families with very poor young children.
The credits lifted 5.1 million children out of poverty last year and made 8.0 million others less poor (see chart).
These figures use Census’ Supplemental Poverty Measure, which unlike the official poverty measure counts taxes and non-cash benefits as well as cash income.
Moreover, these impressive figures likely understate the credits’ anti-poverty impact. One reason is that the EITC not only boosts incomes directly but also encourages work, raising people’s earnings. This additional anti-poverty effect, which the SPM doesn’t count, is significant: it nearly doubled the number of people the EITC lifted out of poverty in families with a single mother aged 24-48 without a college degree in the 1990s, researchers find. (The CTC hasn’t been studied to the same extent, but it shares key design features with the EITC so it likely has similar pro-work effects.)
Also, a growing body of research links income from these tax credits to better infant health, improved school performance, higher college enrollment, and increased work and earnings in adulthood for children whose families receive the tax credits. As a result, the tax credits may reduce poverty not only in the near term, but also in the next generation.
The Census estimates don’t include the state-level EITCs that 26 states and the District of Columbia have created to build on the success of the federal credit. These state credits further reduce poverty and inequality.
Federal policymakers can improve the EITC and CTC by:
- Strengthening the EITC for workers not raising children in the home. They’re the lone group taxed into poverty by federal taxes, mainly because they are largely excluded from the EITC. Proposals by President Obama and House Speaker Paul Ryan to expand the EITC for these workers would go a long way toward the goal of ensuring that no worker is taxed into poverty. Even more robust proposals by Senate Finance Committee member Sherrod Brown and House Ways and Means Committee member Richard Neal would essentially meet this goal completely.
- Strengthening the CTC for the poorest young children. They qualify for only a very small CTC or none at all, even though they need it most. Some 17.3 percent of children under age 6 were poor in 2015, a notably higher rate than for older children or adults. Policymakers could boost young children’s potential to succeed by making the full CTC (or a larger one) available to their families.
States can also adopt or strengthen their own EITCs to reduce poverty and build a stronger future economy.
- El crédito tributario por hijos
- Federal Payroll Taxes
- Federal Tax Expenditures
- Fiscal Stimulus
- Marginal and Average Tax Rates
- Tax Exemptions, Deductions, and Credits
- The Child Tax Credit
- The Earned Income Tax Credit
- The Federal Estate Tax
- Where Do Federal Tax Revenues Come From?
- Where Do Our Federal Tax Dollars Go?