A Tax Incentive that Pays

By Liz Wing on 09/02/2010 @ 04:00 PM

This week I attended a very informative information session at the Center for American Progress (CAP). The information session, titled "Making the Tax Code Work for Working Families", explored how recent legislation and long-standing tax credits benefit families and children. Neera Tanden, Chief Operating Officer at CAP, kicked off the event with introductions and Jason Furman, Deputy Assistant to the President for Economic Policy gave us a historical perspective.

The American Recovery and Reinvestment Act of 2009 - enacted the broadest tax cut in history, affecting over 100 million families, 95% of working and middle class families.

This Act includes some of the most important adjustments for the working and middle class. It has:

- Reduced the marriage penalty for couples in the lower tax brackets (this had already been done for couples in the high and moderate tax brackets.) - Added a new tier for families with more than 2 children (previously families with 2 or 5 children were getting the same tax credit.) - Lowered the earning requirement in order to receive the Earned Income Tax Credit. (Previously you had to earn at least $8,100 per year - meaning full-time minimum wage workers would not be eligible.) The new minimum earning to be eligible is $3,000 per year.

Earned Income Tax Credit

According to the IRS, the Earned Income Tax Credit (EITC) is a "refundable federal income tax credit for low to moderate income working individuals and families. Congress originally approved the tax credit legislation in 1975…" Families and individuals must have a job in order to qualify for the tax credit. Recipients spend the credit on critical needs for their family: rent, heat, health care and school, for example.

An estimated 18 million children are impacted by the EITCs each year. And a study shows that a year after a family receives the EITC the health of the mother improves significantly.

Melissa Boteach, Half in Ten Campaign Manager at CAP, said these programs are designed to "make sure work pays more than welfare."

Stimulating the Economy

Lately there has been a lot of news about tax cuts and how they impact the economy. One thing that we do know is that tax cuts to working families helps to stimulate the economy because the families spend the money - often on critical needs. However, tax cuts to the highest earners have virtually no impact on the economy because they don't have urgent needs on which to spend their extra money. Moreover, assisting a family in becoming the first generation to go to school, or to own a home is a valuable investment for our country to make.

A recipient of the EITC spoke about her experience. She said, "It changed my life. It made me independent and able to stabilize myself." She grew up moving from shelter to shelter as a child. Now, with two children of her own, she is working to build them a better life than she had. She represents thousands of working mothers in full-time jobs who make the most of their situations, and who find hope in the EITC. Her story illustrates exactly what the credit is all about.

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