The President’s budget for 2015 includes several important improvements to the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) that, taken together, would help low-wage Kentucky workers and their families make ends meet, reduce income inequality and give a boost to the state’s economy.
One proposal is to expand the now-tiny Earned Income Tax Credit (EITC) for working childless adults and non-custodial parents (“childless workers”), an idea that has growing support across the political spectrum. That expansion would help 187,000 workers in Kentucky.[1. See fact sheet for sources.]
Currently, a childless adult working full-time at the minimum wage pays significant federal income and payroll taxes, but receives an EITC of less than $30. Partly as a result, childless workers are the sole group of workers that the federal tax system taxes into—or in many cases, deeper into—poverty.
For families with children, by contrast, the EITC—when combined with the CTC—is our most powerful anti-poverty tool. On average, over 2010 to 2012, the two credits lifted 154,000 people—including 88,000 children—out of poverty in Kentucky each year.
Raising the maximum EITC for these childless workers, and making workers between the ages of 21 and 25 eligible who currently are excluded, would substantially increase their after-tax incomes and reward work. This is especially important for less-educated young people who may face multiple challenges when beginning their working careers, helping them gain a foothold in the economy.
The President’s proposal also would significantly help low-income working families with children by making important improvements to the EITC and CTC permanent. These improvements, first enacted in 2009 and slated to expire in 2017, have made more low-income working families eligible and boosted the credit for many others. 183,209 families in Kentucky are benefiting from these improvements, which have lifted an average of 24,500 Kentuckians, including 14,600 children, out of poverty each year between 2009 and 2012.
The EITC has a proven track record of boosting employment among parents. And, research has shown that the EITC also has important positive long-term impacts on children—helping them to do better in school, improving academic performance, and boosting college attendance rates. It would also give our economy a boost. Eligible workers would get to keep more of what they earn and, in turn, spend those dollars here in our state.
The proposal builds on this record of success by extending important improvements in the EITC and CTC for families with children and expanding the credit for childless adults and non-custodial parents. Congress should act on this idea.
Another critical way to enhance the benefits of the EITC would be for Kentucky to join 26 other states (including DC) and create a state EITC based on the federal credit.
See below for a fact sheet explaining the impact of these tax credits and the proposed expansion.
