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A Rising Number of State Earned Income Tax Credits Are Helping Working Families Escape Poverty |
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Center on Budget and Policy Priorities: An Earned Income Tax Credit is a tax reduction and a wage supplement for low- and moderate-income working families. States that enact EITCs can reduce child poverty, increase effective wages, and cut taxes for families struggling to make ends meet. When the new EITCs are fully implemented, roughly one-third of recipients of the federal EITC will live in a state with an EITC. Over the last several years, several million welfare recipients have left welfare and become employed, most of them for low wages. Enacting a state EITC is a way to ensure that low- and moderate-income families share in the benefits of tax cuts. The maximum federal EITC benefit for the 2006 tax year is $4,536 for families with two or more children and $2,747 for families with one child. Nineteen state EITCs piggyback directly on the federal EITC; those 19 states use federal eligibility rules and express the state credit as a specified percentage of the federal credit. Notes: From 1999 to 2001, Colorado offered a 10% refundable EITC financed from required rebates under the state's "TABOR" amendment. Those rebates, and hence the EITC, were suspended beginning in 2002 due to lack of funds and again in 2005 as a result of a voter-approved five-year suspension of TABOR. If a family has no income tax liability, the family receives the entire EITC as a refund. Existing refundable state EITCs cost less than 1 percent of state tax revenues each year, though their dollar cost varies considerably from state to state because of differences in the size of state economies.
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