America's Poor and the Great Recession by unknow

Author:unknow
Language: eng
Format: epub
Tags: Public Policy, Public Affairs & Administration, Social Services & Welfare, Social Science, Political Science, Social Work, Sociology, General
ISBN: 9780253009678
Google: u40fsNO3iFwC
Goodreads: 16149648
Publisher: Indiana University Press
Published: 2013-01-01T00:00:00+00:00

Earned Income Tax Credit (EITC)

A variety of recent tax-policy changes have helped low-income Americans. The 2009 federal stimulus package expanded the 1997 child tax credit so that a larger number of low-income households receive benefit from the credit.194 In 2009 and 2010, the new Making Work Pay (MWP) tax credit also provided $400 to individuals and $800 to joint filers. Payroll tax relief enacted by Congress in 2009 benefited the working poor and near poor. On the other hand, relief from the Alternative Minimum Tax, although popular with the public, had little impact on the poor and near poor. Perhaps the key tax reform for working poor families with children is the Earned Income Tax Credit (EITC), which was enacted by Congress in 1975 and expanded four times (1986, 1990, 1993 and 2001).

An EITC is a refundable credit aimed at the lower portion of the income distribution. It is typically received as a lump sum tax rebate, after an income tax form is filed. Many states offer an EITC that is patterned after the federal credit. The federal EITC is designed to reward and supplement earnings while reducing the tax burden of eligible households. For workers with two children at the very low end of the earnings distribution, it gives a credit equal to $0.40 for every dollar earned.195 In order to receive any EITC, an individual or household must have some earnings during the calendar year and must file a federal tax return. In other words, the EITC provides no benefit to those who do not work, including those suffering long-term unemployment due to the Great Recession.

The value of the EITC rises as earnings rise, and then flattens out until earnings reach a point where the maximum credit is achieved. The credit then decreases after this point, until it phases out completely. The level of earnings at which these changes occur varies by household size and composition. For example, in 2010, the maximum EITC payment for a mother and three or more children was $5,666, after the household earned $12,590. The value of the household’s credit begins to decline when earnings reach $16,450, and the credit is zero when earnings exceed $43,352.196 The income limits are somewhat higher for households headed by a married couple.

While the EITC is an important tool in federal anti-poverty policy, it responds to recessionary periods in different ways for different families. As a recession occurs, some families are more likely to begin receiving this benefit, while others lose it. For example, the probability of receiving EITC increases for two-income households if one earner loses his/her job. In other words, the loss of one income could decrease total household income enough to make a formerly ineligible household eligible for the EITC. On the other hand, if a single-income head of household becomes unemployed and generates little or no earnings, that family may be less likely to receive an EITC payment, or that payment might be lower than what would be received for working during the full year.

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