We retired Tax Justice Blog in April 2017. For new content on issues related to tax justice, go to www.justtaxesblog.org
The year was 1975, when bellbottoms were king, everyone’s favorite pet was a small rock, and no one would go to the beach thanks to Stephen Spielberg. But the most momentous occasion that year – outshining even the birth of the Kool-Aid man, an American icon and hero to hyperactive children everywhere – was the passage of The Tax Reduction Act of 1975 and, with it, the Earned Income Tax Credit (EITC).
Signed into law by President Gerald Ford, the EITC is the one of the largest and most successful anti-poverty programs ever enacted in the United States; in 2013 the program lifted 6.2 million people out of poverty, and was more effective that both welfare reform and a strong economy in encouraging work during the 1990s. The EITC doesn’t just boost income for working families; according to Professor Kathryn Edin, co-author of It’s Not Like I’m Poor, the credit helps families “pay off old debts, repair their credit, put away savings, and make investments in assets like education, vehicles for work, and even first home down payments.”
The EITC is a refundable income tax credit equal to a percentage of earnings (which varies by family composition) up to a maximum amount, and it is phased out at higher income levels. The federal EITC is refundable, which means that if it exceeds a worker’s tax liability then the IRS will refund the balance to that worker. As of today, 25 states and the District of Columbia have enacted their own EITCs to help struggling families get ahead.
Sadly, the EITC is undergoing a midlife crisis as it turns 40, because many misguided policymakers want to cut the EITC in order to pay for tax cuts for the well-off. There have been a few positive developments – last year, the District of Columbia expanded their EITC to include childless workers, the governor of Mississippi has proposed a new (non-refundable) EITC for his state, and many states are trying to expand their existing credits. But today, more than ever, we need to fight to keep this crucial anti-poverty measure intact at the federal and state level.
To celebrate EITC Awareness Day, follow the links below to learn more about the credit, and follow our work here at ITEP to help states implement or strengthen the EITC for their residents:
Multi-State: “Improving Tax Fairness with a State Earned Income Tax Credit,” May 2014 (read here)
Multi-State: “State Tax Codes as Poverty Fighting Tools,” September 2014 (read here)
Multi-State: “Who Pays? A Distributional Analysis of the Tax Systems in All 50 States,” January 2015 (read here)
California: “A State EITC: Making California’s Tax System Work Better for Working Families,” December 2014 (read here)
Indiana: “The Status of Working Families in Indiana: 2015 Report,” January 2015 (read here)
Mississippi: “Policy Brief: A State Earned Income Tax Credit: A Boost for Mississippi Families,” January 2015 (read here)
New Jersey: “Tax Increase to Fund Transportation Should Be Combined With Credit to Help Low-Income Families,” January 2015 (read here)
New Mexico: “Expanding New Mexico’s Working Families Tax Credit Would Generate Economic Activity and Help Hardworking Families,” October 2014 (read here)
Ohio: “Out of Step: More Needed to Make Ohio EITC a Credit That Counts,” August 2014 (read here)
Rhode Island: “Making Work Pay for Working Families: Increasing the State’s Earned Income Tax Credit,” January 2015 (read here)
ITEP is also working with partner organizations in Colorado, Georgia, Illinois, Iowa, Louisiana, Michigan, Pennsylvania, Virginia and Washington, among others, on EITC proposals.