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Working-Family Tax Relief in Tax-Cut Deal Would Keep 2 Million People Above Poverty Line

Three major tax benefits for middle- and lower-income working Americans in the tax-cut deal between President Obama and Republican leaders (that go beyond extending the Bush tax cuts) would keep more than 2 million Americans above the poverty line and reduce the severity of poverty for 19 million more, Center analysis finds.

The three provisions are a temporary payroll tax cut and temporary extensions of the 2009 Recovery Act improvements in the Child Tax Credit (CTC) and Earned Income Tax Credit (EITC).  In 2011, they would:

  • keep the family incomes (after subtracting federal income and payroll taxes) of 2.4 million Americans, including 1.2 million children, above the official poverty line; and
  • lessen the severity of poverty for 19.4 million poor Americans, including 7.2 million children, by lifting their incomes closer to the poverty line.

By itself, the CTC provision would keep 1.3 million Americans above the poverty line; the EITC provision would keep over 300,000 out of poverty; and the payroll tax reduction would keep about 900,000 out of poverty.  (Continuing the Recovery Act’s Making Work Pay tax credit would have kept 500,000 more people out of poverty than the payroll tax reduction, but Republican leaders negotiating with President Obama were willing to extend Making Work Pay only as a non-refundable credit, which would have eliminated its poverty-reducing impact.)

The analysis assumes that without the agreement, the EITC and CTC would shrink in 2011 to the levels enacted in 2001.

To produce these estimates, we used Census Bureau survey data on 2009 incomes to calculate Americans’ taxes both with and without the expanded credits and payroll tax cut.  We subtracted federal income taxes and payroll taxes from income and then compared families’ resulting after-tax incomes with the Census Bureau’s official poverty threshold to determine their poverty status.  The official poverty line in 2009 was $21,954 for a family of four.  (Later this month the Census Bureau is expected to release additional data on estimated tax liability and an experimental poverty measurement, which will make improved comparisons possible.)

Next week I will release a more comprehensive analysis that includes the anti-poverty effects of another part of the deal, the unemployment insurance extension.