Deputy Director, Federal Tax Policy
The Earned Income Tax Credit (EITC) and low-income portion of the Child Tax Credit (CTC) together lifted about 10 million Americans out of poverty in 2014, new Census data show — including more than 5 million children, more than any other federal program does. These figures use Census’ Supplemental Poverty Measure (SPM), which counts taxes and non-cash benefits as well as cash income.
Yet these impressive figures likely understate the anti-poverty impact of these working-family tax credits, for two key reasons.
First, the EITC not only boosts incomes directly but also encourages work, which in turn raises people’s earnings. This additional anti-poverty effect, which the SPM doesn’t count, is significant: it nearly doubled the number of people that the EITC lifted out of poverty in families with a single mother aged 24-48 without a college degree in the 1990s, researchers find.
Second, a growing body of research links income from these tax credits to better infant health, improved school performance, higher college enrollment, and increased work effort and earnings in adulthood for children in families receiving 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 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.
Unfortunately, the EITC and CTC’s pro-work, anti-poverty success will erode unless policymakers act. As Congress considers tax legislation this fall, it should save critical EITC and CTC provisions set to expire at the end of 2017. Using Census data released last year, we estimate that 16 million people in working families will be pushed into or deeper into poverty if those provisions expire. Census data released in the coming days will allow us to update those estimates, so check back here to learn more about the critical stakes for working families.