How State Earned Income Tax Credits Help Working Families Escape Poverty In 2006
A Hand Up: How State Earned Income Tax Credits Help Working Families Escape Poverty In 2006, 3/8/06
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.
Most recently, Delaware and Virginia enacted new EITCs, Illinois and Oregon changed their state EITC from non-refundable to refundable, and several states, including the District of Columbia, expanded existing EITCs.
Over the last several years, several million welfare recipients have left welfare and entered the workforce; many other families have accepted the challenge of making ends meet on low-paying jobs without seeking public assistance.
A full-time job at the federal minimum wage of $5.15 per hour often is not sufficient to lift a family out of poverty.
State EITCs support families who enter and remain in the workforce.
Enacting a state EITC is a way to ensure that low- and moderate-income families share in the benefits of tax cuts.
This is particularly important because most state tax systems rely heavily on sales, excise, and property taxes, the burden of which falls most heavily on low- and middle-income families.
The federal EITC was established in 1975 to offset the effects of federal payroll taxes on low-income families.
If a family has no income tax liability, the family receives the entire EITC as a refund.
The annual cost of refundable state EITCs in recent years has ranged from about $17.3 million in Vermont to $591 million in New York, less than 1 percent of state tax revenue in each state.
