It's Time for Congress to Put Working Families First

September 16, 2014

One U.S. government program has been praised by everyone from Ronald Reagan to Paul Ryan to Barack Obama. The program helps move millions of families above the poverty line while strengthening local economies and driving down unemployment. But today the wellbeing of millions of hardworking Americans is at stake as Congress fails to protect this critical program—the Earned Income Tax Credit.

On October 16, the Census Bureau released the latest Supplemental Poverty Measure, showing that more than one in six Americans (15.5 percent, 48.7 million total) were still living in poverty in 2013. The rates are even worse for children. Meanwhile, important provisions of the Earned Income Tax Credit — one of the country’s most effective anti-poverty strategies — are set to expire if Congress doesn’t act.

The Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) help low-income working families make ends meet and are our nation's most successful anti-poverty programs for children. They incentivize hard work, and they successfully helped move almost 9 million Americans, many of them children, out of poverty in 2013 alone.

Important improvements to these tax credits are set to expire in 2017. If Congress doesn’t act in time, about 12 million people, including 7 million children, will slip into poverty or deeper into poverty.

Earlier this year, the House of Representatives passed tax legislation benefiting relatively affluent families while letting millions of low-income working families become poorer.

The decisions made in our nation’s Capitol have big implications for all of us. Congress should waste no time making the important provisions of the EITC and CTC permanent and building on the success of the EITC by expanding it to workers without children.

Tax Credits for Low-Income Americans

How do they work?

The Earned Income Tax Credit (EITC) is a refundable federal income tax credit for low-income working individuals and families. It is designed to “make work pay.” Because the credit grows for low-income workers as their incomes increase, the EITC provides a financial incentive for workers to stay employed and increase their earnings.

The Child Tax Credit (CTC) is a partially-refundable tax credit designed to help families with the cost of raising children. Households with at least $3,000 in earned income can get a tax credit of up to $1,000 for each child under 17 years old. By reducing income tax liability, this credit helps offset the cost of raising children.

Why do they matter?

Both the EITC and the CTC generate large decreases in poverty and substantial increases in employment, as well as decreasing the number of single parents receiving cash welfare. They’re critical lifelines for millions of families, and a net-gain for the American tax base.

The benefits are far-reaching: EITC households tend to spend their credits quickly and locally, which produces a strong “multiplier effect,” generating at least $1.50 – $2.00 in local economic activity for every $1 claimed. In the long term, credits like the CTC and EITC help children do better academically and boost their earnings later in life, according to a range of studies

What’s at risk? What is Congress doing about it?

Important and overdue – but temporary – improvements to the EITC and CTC were enacted in 2009, responding to the challenges faced by low-income Americans in the Great Recession. These provisions adjusted the credits to better support married couples, families with three or more children, and families with the very lowest income levels.

We’ve seen the benefit of those changes for millions of families, but they’re scheduled to expire in 2017. If Congress doesn’t act, 12 million people will fall into poverty or deeper into poverty.

In the meantime, the House has moved on tax legislation benefiting the wealthy. They just passed the Child Tax Credit Improvement Act of 2014, which extends the CTC, but only for upper-income taxpayers. The bill also requires at least one parent to have a Social Security number to claim the CTC, which would take the credit away from 5.5 million immigrant children, 4.5 million of whom are U.S. citizens.

What comes next?

‚ÄčAs the Census releases its annual poverty data and the elections approach, Congress should be looking at how we can even better strengthen work incentives and boost incomes for families facing poverty. After making the 2009 provisions permanent, here’s what they can do next:

  • Expand the EITC for adults without children in the home (many of whom are non-custodial parents struggling to pay child support), who are currently only eligible for one-tenth the credit a family with two children receives.
  • Extend the CTC to America’s poorest families. Paradoxically, those families earning less than $3,000 per year are currently excluded from the credit.
  • Make the CTC fully refundable. Because low-income families many times owe little or no income tax (though they still pay other taxes, like payroll, sales, and property taxes), they receive little benefit from a CTC that’s only partially refundable.

While many members of Congress use deficit concerns to justify cuts to anti-poverty programs, this year the House acted on multiple tax breaks for wealthy families and large corporations, adding billions to the federal budget deficit. Now is the chance for voters to remind Congress that it’s time for a change: working families – not wealthy individuals or corporate interests – must come first.

Download this editorial memo as a .pdf.

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