CHN: Low Income Tax Credit Improvements Being Considered

May 18, 2007

The House Ways and Means Committee, responsible for overseeing tax legislation, is planning to introduce legislation this summer that will include expanding and improving the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).  These credits have been shown to lift millions of families out of poverty, and also to be a powerful work incentive.  They provide refund checks to poor families with children and to adults without children even if they are too poor to owe income taxes.  However, many poor families and individuals are denied the credits because they are too poor.

The CTC provides up to $1000 per child under age 17.  However, a family earning less than $11,750 does not qualify for the credit because they earn too little.  Ten million children are in families that receive no CTC and 10 million more are in families that receive only partial CTC.  Every year the minimum earnings are adjusted upward resulting in working poor families whose income has not changed to receive less CTC than in the prior year.  House leaders are considering lowering the income threshold, perhaps to $10,000, and discontinuing indexing it each year.  For every $1,000 the threshold is lowered, working poor families receive an additional $150 in CTC.

Many consider the EITC to be the most effective anti-poverty federal program.  Working poor families with two or more children could receive a maximum EITC credit of $4,536 in 2006.  Childless adults are the only group of working tax filers who begin to own federal income taxes before their incomes reach the poverty line.  Last year working adults without children aged 25-64 could receive a small amount of EITC – the maximum credit was $412.  House leaders are considering doubling the size of the credit for childless workers.

Advocates would welcome improvements that benefit working poor families with children and poor childless workers who have received little benefit from recent tax cuts and are struggling to make ends meet despite hard work.  The Coalition on Human Needs is circulating a group letter to all members of Congress in support of improvements to the CTC and EITC that is being signed by hundreds of organizations nationwide.

For more information regarding the CTC and EITC see CHN’s paper, “Tax Credits That Can lift Millions More Out of Poverty: Facts About the Child Tax Credit and Earned Income Tax Credit.”



Categories: Tax Policy