This week, millions of Americans filed their annual income tax returns with the Internal Revenue Service. Even with tax day behind us, debate continues about the effects of tax law changes passed by Congress in 2017.
But, one thing remains the same: The Earned Income Tax Credit is one of the most effective ways to put needed money into the hands of the nation’s working poor. Expanding the credit — and making sure eligible Americans know about it — can be an important tool to reduce poverty, especially for children.
The federal credit removes more children from poverty than any other program, Hilary W. Hoynes, a professor of public policy and economics at the University of California at Berkeley, wrote in a 2014 article.
In addition to putting cash into the hands of millions of working families, the credit has dramatically increased employment among single women with children. “The EITC, clearly the cornerstone to the country’s ‘second war’ on poverty, may ultimately be judged one of the most successful labor market innovations in U.S. history,” Hoynes wrote.
In addition, research has shown that this tax credit improves the health of mothers and children, improves education performance, and boosts Social Security benefits. Because the recipients of the credit have few financial resources, they spend their credit on bills and one-time large expenditures, putting the money into local economies.
In Maine, more than 103,000 families received the federal EITC in 2017 with an average refund of $2,158. Another 20,000, by IRS estimates, are eligible for the credit but did not file taxes, so they did not receive it. A partnership between the Maine Center for Economic Policy, Good Shepherd Food Bank, Cash Maine and New Ventures Maine distributed 35,000 postcards to make Mainers aware of the credit.
There are efforts at the state and federal level to expand the EITC, and to expand awareness of the valuable credit.
One bill in Maine would create a Maine Work Tax Credit to raise the value of the state’s EITC credit and to include more people. Maine’s credit is only 5 percent of the federal credit, one of the lowest levels among the 29 states that have such a credit. LD 1491 would increase it to 30 percent for individuals with children, and expand eligibility to 18- to 24-year-olds without children, while creating a credit for students and caregivers. A working group would be established to streamline state tax credits for low-income families and to make these payments available throughout the year, not just when tax refunds are issued.
Another bill, LD 104, would increase the credit to 15 percent of the federal credit and expand it to 18- to 24-year-olds without children. It also seeks to increase awareness of the credit by requiring employers to post notices about it.
At the federal level, Senate Democrats have introduced legislation to expand the EITC as part of a package of tax changes aimed at helping poor working families.
The bill would improve the economic well being of 114 million Americans and cut the child poverty rate by 28 percent, according to the left-learning Center on Budget and Policy Priorities.
Sen. Angus King joined 44 Democrats in supporting the bill. Sen. Susan Collins also supports the EITC, but her office said she needs to see the details of the bill before deciding whether to back it.
The Earned Income Tax Credit promotes work and increases earnings for low- and moderate-income families, and it helps the local and national economy. Expanding it to more people who are struggling to stay out of poverty is a good investment.