Wednesday, October 19, 2011

New Research Highlights Importance of EITC for Working Families

Center on Budget and Policy Priorities

October 19, 2011 at 2:49 pm

New research shows that a larger share of families than we might think turn to a key federal work support — the Earned Income Tax Credit (EITC) — but that most of them receive the credit for only a year or two at a time.

Taken together with other research, the new study suggests that while the EITC helps some workers who are persistently paid low wages, for most families who use it, the credit provides effective but temporary help during hard times.

[...]

Approximately half of all taxpayers with children used the EITC at least once during this 18-year period.

A large majority (61 percent) of those using the EITC did so for only one or two years at a time — only 20 percent used it for more than five straight years (see graph).

The EITC goes to working people — the overwhelming majority of them families with children — with incomes up to roughly $49,000. Earlier unpublished research from Dowd and Horowitz found that EITC users pay much more in federal income taxes over time than they receive in EITC benefits. Taxpayers who claimed the EITC at least once during the 18-year period from 1989 through 2006 paid several hundred billion dollars in net federal income tax over this period, after subtracting the EITC and any other refunds.

Dowd and Horowitz’s new study also found that EITC use is highest when children are youngest — which is also when parents’ wages are lowest. (Working parents’ wages rise, on average, as their children grow up.) This finding is particularly important given the importance of income for young children’s learning and the evidence that poverty in early childhood may reduce children’s earnings as adults.

..

No comments:

Post a Comment