There’s been a lot of talk about what to do with the Bush tax cuts set to expire at the end of this year. But what about other soon-to-perish parts of the tax code? Provisions that, not unlike the Bush tax cuts, affect millions of ordinary Americans?
With the passage of ARRA in 2009, both the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) were expanded, bringing a combined $171 million in additional resources to Minnesota’s poorest families. The CTC aims to provide extra support to workers with dependent children, while the EITC provides a modest tax return to those with very low yearly incomes.
The EITC has long been touted by liberals and conservatives alike as a fair and economically efficient program that incentivizes people to participate in the workforce while lowering reliance on welfare and other social safety nets. EITC benefits start at $0 for those who do not work, increase incrementally for those making $0 to $10,000 per year, remain flat from $10,000 to $15,000, and then slowly decrease again to a $0 benefit at the $40,000 yearly salary mark. The benefits vary somewhat depending on family structure (see a more detailed explanation and graph here).
Minnesota has been a leader of states that enhance EITC support, currently matching federal benefits at 33% of the federal tax credit.
Extending the added EITC and CTC benefits is an important part of the picture, but it does not reduce the need for important safety-net programs such as the Supplemental Nutrition Assistance Program (SNAP), Medicaid, and unemployment benefits. EITC and CTC benefits often come too late for low and middle-income families in a recession because they do not provide a safety net for those who are laid off. Nevertheless, EITC is a smart way to reward hard-working Americans and provide additional spending power to families whose day-to-day consumption stimulates the economy. EITC and CTC promote efficient incentives and help support people in our communities. It’s time to start talking about extending these parts of the tax code.