Q: What is the biggest way our federal tax system fights poverty?


Q: What is the biggest way our federal tax system fights poverty?

A: That would be the Earned Income Tax Credit (EITC), which has been around since 1975. As you can see in the chart above, spending on the EITC (the blue line in the chart) is more than double that on food stamps ("TANF," the green line), and it has been expanded by Republican and Democratic presidents. President Reagan called it “the best anti-poverty bill, the best pro-family measure, and the best job-creation program ever to come out of the Congress of the United States,” and President Obama said the EITC “has probably kept more people out of poverty than a whole lot of other government programs that are currently in place.” Low-income people with income earned from a job (as opposed to income from, say, investments) can claim the EITC and get a tax refund, so it puts cash directly into people's pockets for whatever they need most- up to $3,400 in 2017 for people with one child (depending on income level) and up to $6,318 for people with three or more children. If someone has no kids, though, the maximum is unfortunately only $510. Nearly all of the benefits from the EITC go to workers in the bottom 60% of income, and more than half go to those in the bottom 40% of income. One study found that many people who claim the EITC only use it for a year or two, meaning it helps people get through a tough time, and often when their kids are youngest and their own wages are at their lowest. 

Ok, that's Stephanie's general description of the EITC, and now here's her more personal note about it: I didn't know about the EITC until 2003, when I started doing volunteer tax prep for low income people. So many of my clients have been single moms, and when you see a woman across the table from you who only made $17k last year and is raising 2 or 3 kids in the city, you know how important that refund check is. And the EITC is different from other government programs - nobody calls it "welfare" and it is truly earned. It's certainly not perfect (it is really complicated, so a lot of people need help preparing their taxes, and the error rate for EITC claims is high), but it has helped millions of Americans who are working and really need extra help. We need to bring down the hammer on any Republicans who try to cut the EITC this year when they attempt tax reform. 

- originally published in the 9/18/2017 newsletter

Stephanie Lee