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For Many, Tax Day Brings Joy: How Tax Credits Change Lives

120417-heatherfam
Heather Rude-Turner, 31, of northern Virginia, and her fiancé Mark Diamond, plan to marry in the spring of 2012. After they combine their incomes they will likely become ineligible for the Earned Income Tax Credit, which Heather credits with helping keep her out of poverty and getting her back on her feet when she left her abusive husband a few years ago. Photo by Laura Elizabeth Pohl/Bread for the World

For much of the American public, Tax Day brings groans and headaches. Personally, I believe those headaches come more from our tax code’s complexity than from the actual amount most of us owe.

Yet, for many in our country, Tax Day literally bring tears of joy. That is because two of our nation’s most significant anti-poverty programs are administered through the tax code: the Earned Income Tax Credit (EITC) and the Child Tax Credit. For a low-income working family struggling to make ends meet, Tax Day can bring a refund of well over $1,000, which can make a world of difference. The EITC and Child Tax Credit enable low-income families to meet basic needs, respond to emergencies, pay off bills, and save. (Read this excellent New York Times article on EITC.)

According to the Center on Budget and Policy Priorities, using the National Academy of Sciences definition of poverty (generally thought to be more accurate than the Census Bureau’s traditional poverty measure) these two credits lifted 9.3 million people out of poverty in 2010. The EITC and Child Tax Credit provide a boost in earnings so that full-time working parents don’t have to raise their children in poverty.

These credits encourage work, because the more you work, the larger your credit (until a certain point, whereupon the credit amount begins to decrease). Studies have shown expansions to EITC helped boost employment among single mothers. A majority of EITC beneficiaries only receive the credit for one or two years before moving onto higher income brackets. This is exactly the sort of thing our anti-poverty programs should be doing.

Improvements made to the EITC and Child Tax Credit in 2009 kept 1.6 million people out of poverty in 2010. Yet those improvements will expire at the end of this year unless Congress acts. A single parent working full time at minimum wage with two kids stands to lose over $1500 from these expiring provisions of the Child Tax Credit. If Congress fails to continue current benefit levels, families with three or more children will see their EITC benefit shrink as will married couples will be faced with a higher marriage penalty.

Congress has some major decisions to make about tax policy this year. Whether to continue current benefit levels of the EITC and Child Tax Credit should not be a difficult one.

But despite the proven effectiveness of these programs to alleviate poverty and promote economic mobility, these credits are in jeopardy. Some members of Congress are even considering cutting the Child Tax Credit. A current proposal exists to limit eligibility of the Child Tax Credit, which could affect millions of children in low-income immigrant families. The proposal is likely to increase taxes by an average of $1,800 on families typically earning a little over $21,000 a year.

Tax Day may be a headache, but the EITC and Child Tax Credit can also make it a lifeline for millions of families in this country. Today, it is worth taking a moment to remind your members of Congress about the need to protecting current EITC and Child Tax Credit benefits. Send them an email today! 

Amelia-keganAmelia Kegan is senior policy analyst at Bread for the World.

 

 

+Learn more about our mini-campaign on tax credits for low-income families.

 

« Video: Tax Credits Help a Mom Get Back on Her Feet Hunger QOTD: Elie Wiesel »

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