Feature Story

August 26, 2008

Refundable Credits Have Cut Taxes for Low-Income Households

From Urban Institute Latest ReportsSearch:

In 1979, federal taxes claimed 8 percent of the income of households in the lowest quintile of the income distribution.1 Over the following three decades, the average effective tax rate (ETR) taxes as a percentage of income fell by nearly half to 4.3 percent in 2005. Most of the decline resulted from a sharp drop in the individual income tax, primarily due to expansion of the earned income tax credit and the child tax credit (CTC). Because the EITC is refundable and the CTC is partially refundable, they can reduce a households tax liability below zero and generate a net payment. Read more from this post.