Top reasons working families should claim the EITC in 2013 – and that policymakers should protect and strengthen it
Article written by the National Community Tax Coalition
The federal Earned Income Tax Credit (EITC) represented nearly $60.7 billion in help for almost 26.5 million low- and moderate-income, working households in 2012. But about one in five EITC-eligible taxpayers fails to claim the credit, missing-out on valuable assistance in covering their families’ most fundamental expenses. Below are 13 of the many reasons that families should ensure they obtain the EITC for which they qualify – reasons that also illustrate the significance of policy efforts to maintain and strengthen this crucial tax credit.
Recently, Congress voted to retain key improvements in the EITC and other key tax credits for working families, but only through 2017. Congress must continue to prioritize these credits throughout federal tax-policy discussions in 2013 and beyond. Similarly, state governors and legislators should support families’ well-being in their own, state-level policy discussions – protecting and improving such credits in states that already have adopted their own versions of the federal EITC, and creating such state credits where they do not yet exist.
It’s important to remember that the EITC:
1. Reflects hard work. The credit is available only to taxpayers who work and have earned income.
2. Helps families to cover their basics. Groceries, rent, and utility bills are common uses for families’ EITC dollars. Another frequently-cited expense: car repairs, to help family breadwinners with the transportation necessary to get to and maintain their jobs.
3. Is particularly important to households with children. The amount of the credit is greater for families who incur the added expenses of raising kids. And this EITC assistance was responsible for keeping an average of 3.1 million children out of poverty annually from 2009-2011.
4. Is typically needed for only temporary stretches of time. Families only use the credit until they can get back on their feet. Indeed, among EITC filers studied between 1989 and 2006: 42 percent claimed the credit for only one year at a time, 19 percent retained it for two straight years, and only about one in five kept the credit for five or more consecutive years.
5. Helps struggling families who already pay a significant amount in federal taxes. In fact, the poorest one-fifth of Americans paid 8.3 percent of their incomes in payroll taxes in 2009, compared with the wealthiest 1 percent of households, who paid only 2.5 percent of their incomes in payroll taxes. And among those Americans who owed no federal income taxes in 2011, about 93 percent were either workers who still owed federal payroll taxes, elderly, not working due to illness or disability, or students.
6. Helps struggling families who also pay a significant amount in state and local taxes. In 2011, the poorest one-fifth of Americans paid 12.3 percent of their incomes in state and local taxes, while the wealthiest 1 percent of households paid only 7.9 percent of their incomes in state and local taxes.
7. Lifts more families out of poverty than any other federal policy. The EITC kept an average of 6.1 million people out of poverty annually from 2009-2011, and reduced the effects of poverty for another 21.2 million people.
8. Strengthens families’ health outcomes. The EITC is associated with decreases in maternal smoking and increases in infants’ birthweights, according to research.
9. Bolsters students’ education outcomes. The EITC is associated with increases in kids’ math and reading test scores, studies show.
10. Boosts the economic strength of local communities. As families spend the money they save through the EITC, small businesses benefit. In fact, studies have shown that one EITC dollar – spent at the local level – generates as much as $1.50 to $2 in economic activity for the area.
11. Is important to rural Americans as well as those living in other areas of the country. In fact, a higher percentage of rural tax-filers claimed the EITC in 2007 than did urban filers.
12. Helps families to begin or improve upon savings. Many families strive to set-aside some of their EITC to work toward long-term goals or to brace for emergencies. One survey found that about 39 percent of households receiving the credit devoted about 15 percent of their EITC refund dollars to savings.
13. Has historically enjoyed bipartisan support. The EITC was designed during the Nixon administration, established during the Ford presidency, and improved by bipartisan majorities of Congress working with Presidents Reagan, Clinton, George W. Bush, and Obama.