16 Million People Will Fall Into or Deeper Into Poverty if Key Provisions of Working-Family Tax Credits Expire

More than 16 million people in low- and modest-income working families, including 8 million children, would fall into — or deeper into — poverty in 2018 if policymakers fail to save key provisions of two important tax credits (see Figure 1).  Over 50 million Americans, including 25 million children, would lose part or all of their Child Tax Credit (CTC) or Earned Income Tax Credit (EITC).^[1]  Table 1 in the Appendix provides state-by-state data. 

The EITC and CTC encourage and reward work, and there is growing evidence that income from these tax credits leads to better maternal and infant health, improved school performance, higher college enrollment, and increased work effort and earnings in adulthood.^[2]  Both tax credits have enjoyed bipartisan support, and their underlying provisions are permanent parts of the tax code.  But several key features of the tax credits — a lower CTC earnings exclusion (which allows millions of working families to earn a more adequate CTC and means fewer working-poor families are shut out of the credit entirely), EITC “marriage-penalty” relief, and a larger EITC for families raising more than two children — are set to expire at the end of 2017.

Saving these key provisions should be a priority for policymakers and deserves bipartisan support.  The expected push this fall to permanently extend several corporate tax breaks should not take precedence over these key provisions of pro-work tax credits.  When policymakers consider which expiring provisions should receive permanent status, they should accord top priority to the three important CTC and EITC provisions scheduled to expire at the end of 2017. 

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The stakes for working families are high.  For example, a single mother with two children working full time in a nursing home for the federal minimum wage and earning $14,500 would lose her entire CTC of $1,725 if the CTC provision expires.  This is because the CTC phases in with earnings, but if the provisions expire, not one penny of a worker’s first $14,600 in earnings would count toward the credit.  Millions of other workers in low-wage jobs — from child care workers to custodians to health care workers — also face losing some or all of these tax credits. 

Some 65 percent of the families that would lose part or all of their tax credits include at least one full-time, year-round worker.  Consider who stands to lose all or part of their CTC or EITC in 2018: about 1 million veteran and military families;^[3] about 2.6 million rural families;^[4] and over 6 million millennial workers.^[5]  Also, 15 percent of the families that would lose all or part of their tax credits include at least one member with a disability.  Nearly 400,000 individuals with a self-reported disability would lose all or part of their tax credits.^[6]  

The Consequences if Congress Doesn’t Act

Unless Congress takes action, the key provisions of the working-family tax credits — a lower CTC earnings exclusion, EITC marriage-penalty relief, and a larger EITC for bigger families — will expire at the end of 2017.^[7]  (See box for the history of these provisions.)  If that happens:

1. Not one penny of the earnings of a full-time, minimum-wage worker would count toward the CTC, because the credit’s earnings exclusion (the amount of earnings ignored in determining a family’s eligibility for the CTC) would nearly quintuple from $3,000 to $14,600.  A single mother with two children working full time at the federal minimum wage and earning $14,500 would thus lose her entire $1,725 CTC.  Moreover, not only would the earnings a parent needed to qualify for even a tiny CTC jump to $14,600, but the earnings needed to qualify for the full CTC (of $1,000 per child) would rise to nearly $28,000 for a married couple with two children — up sharply from $16,330 under current policy.  As a result, many low-income working families that would still qualify for the CTC after 2017 would see their credit cut dramatically.  For example, the CTC for a family with two children earning $20,000 would drop from $2,000 to $810.
2. Many married couples would face higher marriage penalties, due to a cut in their EITC.  Currently, to reduce marriage penalties, the income level at which the EITC begins to phase out is set $5,000 higher for married couples than for single filers.  After 2017, it would be set $3,000 higher, which would shrink the EITC for many low-income married filers and increase the marriage penalty for many two-earner families.
3. Larger families would face a cut in their EITC.  After 2017, the maximum EITC for families with more than two children would be cut more than $700, by lowering it to the level of the maximum EITC for families with two children.^[8] 

The millions of low-income working families affected by the expiration of these three CTC and EITC provisions would lose an average of about $1,070 a year.^[9] 

Millions of Americans in Working Families Would Face Cut

An estimated total of over 50 million people in low- and modest-income working families would lose all or part of their CTC or EITC if Congress fails to save the key EITC and CTC provisions set to expire at the end of 2017.^[10]  The vast majority of the affected families include people who work all or the majority of the year, as Figure 2 shows.

A diverse range of workers and families stands to lose nationwide.  Table 2 in the Appendix has state-by-state estimates for each of these affected groups:

• Working families facing a cut to their tax credits.  More than 13 million families, including 25 million children, will lose all or part of their tax credits.^[11] 
• Working families pushed into (or deeper into) poverty.  The loss of the key EITC and CTC provisions would push 16.4 million people — including nearly 8 million children — into or deeper into poverty.^[12]
• Veteran and military families.  About 1 million veteran and military families would lose all or part of their tax credits.^[13]
• Rural working families.  About 2.6 million rural families would lose all or part of their tax credits.^[14] 
• Millennial workers.  Over 6 million millennial workers would lose all or part of their tax credits.^[15] 

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Estimates show that workers in a wide range of low-wage occupations would be adversely affected.  Nationwide, they include:^[16]

• Roughly 2.2 million office and administrative support workers, like data entry clerks;
• Roughly 1.6 million transportation and warehousing workers, like truck drivers;
• Roughly 1.3 million health care workers, like home health aides;
• And roughly 1.1 million personal care and service workers, like child care workers.

Our previous report sets out state-by-state estimates for selected occupations illustrating the wide variety of workers affected in each state.^[17]

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Furthermore, 15 percent of all families that would lose some or all of their EITC or CTC — more than one in every seven — include one or more people with a disability.^[18]  Nearly 400,000 workers with a self-reported disability would lose all or part of their tax credits.^[19]