America's Most Effective Anti-Poverty Program

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THE AVENUE APRIL 15, 2010

America's Most Effective Anti-Poverty Program

 It’s April 15th, and that means one more tax season is coming to a close. (For those mad-dashers out there racing for the midnight deadline, you might want to check out form 4868 or at least fuel up with some free stuff to get you to the finish line.)

This Tax Day finds the country in the midst of a tentative economic recovery, and thankfully--though plenty of economists are holding their breath--the economic outlook is better than a year ago. But come recovery or ‘double-dip’, the unavoidable reality is that today there are still millions of Americans out of work or underemployed, and a growing number of individuals and families falling into poverty.

Which brings us back to Tax Day. The tax code does some really important things that often go unnoticed. Specifically, it contains one of the largest and most effective anti-poverty programs in the country: the Earned Income Tax Credit (EITC).

The EITC encourages and supports work by boosting earnings for low-income workers by as much as 45 cents on the dollar. Because it’s refundable--meaning that after offsetting tax liability workers take home the rest of the credit in their refunds--the credit lifts millions of people out of poverty each year.

In 2008, about 24 million taxpayers claimed the EITC for a total of $47.5 billion, an average of roughly $2,000. And in that same year, 10.6 million EITC filers took home an additional $9.7 billion because of the refundable Additional Child Tax Credit (ACTC), adding another $915 on average to their refunds.

Because so many EITC recipients use their refunds to pay bills and buy basic necessities, the EITC gives a boost to local economies as well as families. And the EITC and ACTC themselves got a boost from the American Recovery and Reinvestment Act (ARRA) that will help stimulate local demand this year. But will these credits work in a year when so many didn’t?

Some signs point to yes. During the 2001 recession and slow recovery, the share of taxpayers getting the EITC trended upward, especially in the most affected regions of the country. People who are underemployed and those who spent part of the year out of work may find themselves newly eligible for these credits. And ARRA also extends eligibility to people who may never have qualified for these credits before. So we should expect to see more people who didn’t claim these credits last year getting them this year. (A point, by the way, in favor of supporting more education and outreach around these credits. It’s not too soon to start spreading the word for next tax season, so that people new to these benefits know to file for them.)

Yet in an era where spells of unemployment have stretched past the year mark, some previously-eligible people may lose these benefits altogether. These credits can’t replace safety net services like Unemployment Insurance and food stamps, which help people get by where jobs may still be scarce.  But for those who are getting back to work or trying to get by with reduced hours or wages, it’s important to recognize and maintain the role the EITC and ACTC play in encouraging and supporting those work efforts.

Walk into one of the many volunteer tax preparation sites across the country today, and you can see first hand how these credits make a difference in the lives of real people working to support their families and make ends meet. The U.S. tax code writ large is a big and complicated thing, no doubt. But it’s important to keep in mind what the tax code does right. The EITC gets it right.

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