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Tax Credits for Low-Income Families: Questions and Answers
Families rely on important tax credits to pull themselves out of poverty and put food on the table. The EITC is America’s largest anti-poverty program. In 2010, the EITC lifted 5.4 million people above the poverty line, including 3 million children. In 2009, the CTC lifted 2.3 million people, including 1.3 million children, out of poverty. However, without congressional action, important improvements made to these credits over the last decade will expire at the end of 2012, and millions of low-income working families will find themselves ineligible for these credits or see their benefits fall significantly.
Here is a valuable Q&A about tax credits that you can use as a resource to answer frequently asked questions you might hear from people.
1. What do changes in tax laws have to do with ending hunger?
While ending hunger requires stronger nutrition programs, food assistance alone is not enough. Ending hunger also depends on increasing income for families who struggle to cover their household expenses. The tax system can help do just that. The Earned Income Tax Credit (EITC) is an efficient, proven, well-targeted way to add resources for low-income working families. With this credit, low-income families are better able to meet essential needs, including nutritious food and quality child care.
The poverty that causes hunger is largely due to a lack of money and resources. Food is one of the most flexible items in a low-income family’s budget. Rent, transportation, child care, utilities—these are fixed expenses. As a result, food is often one of the first things cut when low-income families have to tighten their belts. Poverty forces drastic choices, like watering down a baby’s formula to make it last longer. These tax changes would put more money in the pockets of low-income families, making it easier for them to make ends meet.
2. Why do low-income people get tax breaks like the EITC and I don’t get similar credits or deductions on my taxes?
The tax code has many incentives that encourage taxpayers to make certain fiscal choices, like saving for retirement, attending college, or owning a home. But many of those tax credits are out of reach for low-income earners who often do not have the same tools for those kinds of expenditures or for long-term financial investments. Moreover, most tax deductions and exclusions are regressive, meaning they provide a larger benefit for wealthier individuals.
By expanding the benefits low-income workers receive, including making benefits refundable, tax credits encourage work and open up more financial choices. Programs like the EITC that benefit low-income working people represent only a fraction of the amount spent through the tax code. The EITC and Child Tax Credit (CTC) accounted for a little over $111 billion, or about 10.3 percent, of the more than $1 trillion spent through the tax code for all taxpayers in 2010.
3. Many people pay no taxes at all in this country. Why is it fair for people like that to still have access to many government programs without helping to pay for them, and get a refund check from the government on top of that?
First, all Americans pay taxes. While some individuals do not pay income taxes, they still pay plenty in federal payroll taxes, sales tax, and other federal, state, and local taxes. Most of these other taxes are regressive, taking a larger share of a poor or middle-class family’s income than wealthier families. In fact, most Americans pay more in payroll taxes than federal income taxes. The one-fifth of taxpayers with the lowest incomes pay 12.4 percent of their income in state and local taxes, which is significantly more than the rate that the top 1 percent of taxpayers pay, which is 8.4 percent. The EITC and CTC help offset this burden for many low-income working families.
The federal tax code includes provisions that reduce or eliminate tax liabilities for many individuals, at all income levels, and for corporations. But let’s get back to the real question: shouldn’t parents who work full time be able to support their families? The tax policies Bread supports help parents who work hard—who are trying to be responsible—achieve a basic standard of living and support their families. If Congress fails to continue the current CTC benefit levels, a single parent with two children working full time at minimum wage (earning about $14,500 a year) will lose nearly $1,500.
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