State EITCs Make Work Pay for People of Color and Women

Labor Day celebrates workers’ contributions to America’s prosperity. But even as our economy is growing, many people of color and women are struggling to get by on low wages. States can help make work pay by creating or expanding Earned Income Tax Credits (EITCs). Twenty-nine states plus the District of Columbia have enacted their own version of the federal credit to help low-wage, working households meet basic needs. States that haven’t yet enacted an EITC should do so, and those with small credits — or credits that don’t provide workers with the full value of the credit they’ve earned if it exceeds their income tax liability — should expand them.

When wages are stagnant for low-wage workers, as they have been since the late 1970s, women and people of color are particularly affected. Women comprise less than half of the workforce but roughly 3 out of 5 workers in occupations with low pay. And African American and Latino workers in general are far likelier than white workers to earn poverty-level wages. Because people of color and women are overrepresented in low-wage work, state EITCs are an important tool for advancing racial and gender equity.

State EITCs:

• Make work pay and help reduce poverty in communities of color. The EITC is designed to help families with children that struggle on low wages. While state and federal EITCs serve a larger number of white households than any other racial or ethnic group (due in large part to population size), they serve a larger proportion of people of color relative to population size, and state EITCs lift a larger share of the non-white and Latino populations out of poverty.
• May boost earnings and income as children of color reach adulthood. Children of color are likelier than white children to grow up in households struggling on low pay, and children growing up poor tend to work less and earn less as adults relative to their peers in higher-income families. But additional income (from whatever source) gives children a boost that lasts into adulthood, evidence suggests. EITCs can help struggling families better support their children’s growth and development and future success in the workforce.
• Encourage women to work, especially unmarried mothers. State and federal EITCs are some of the most effective policies to encourage women to work more hours and raise their earnings, particularly for unmarried mothers earning low wages. Unmarried mothers’ work rates rose substantially after the federal EITC expansions of the 1990s relative to married mothers and single women without children. Additionally, studies controlling for other factors found that the federal EITC expansions increased unmarried mothers’ work rates beyond those of their counterparts who weren’t receiving the EITC.
• Reduce poverty among senior women. EITCs encourage work and often lead to better opportunities and higher pay over time. More work among women while they’re young increases their Social Security retirement benefits and thereby reduces poverty among senior women. That’s especially important because women over 65 are likelier to be poor than men, regardless of marital status, race, or educational background. State EITCs build on the federal credit’s poverty-reduction record.