How The Earned Income Tax Credit Helps Texans Escape Poverty

Mar 11, 2020
Originally published on March 12, 2020 4:04 am

The Earned Income Tax Credit (EITC) is designed to lift low income workers out of poverty, but new research from the 'Institute On Taxation & Economic Policy shows the tax credit is excluding people in need.

KERA's Justin Martin talked with Aidan Davis, one of the authors of the report, about why some people in Texas and across the U.S. aren't benefiting from the policy. 


What Is The Earned Income Tax Credit?

The EITC attracts credit for people with earned income — people who are working in jobs that pay lower than average wage wages. And depending on how many kids you have, families can usually qualify if they earn less than $40,000 or $50,000 per year.

How Many People Qualify?

A lot of people qualify and it helps a lot of people. In 2018, the EITC alone lifted about 5.6 million people out of poverty and that includes 3 million children.

Without the EITC, the number of poor children in the country would have been more than one quarter higher.

If you look at the combined impact of the EITC and the child tax credit, which reaches basically the same people, that would bring 7.9 million people out of poverty with the two credits. 

Why The EITC Doesn't Cover Certain Childless Workers

The federal credit definitely still has some room for improvement, and the reason that that group isn't covered is largely a design flaw.

When Congress established this policy almost a half a century ago, they decided that the most sympathetic group was families with kids, and those families are certainly in need of this credit. But there was also plenty of other households who would benefit enormously from the extra financial security that a meaningful EITC can offer. 

How Could Texas Benefit From A State Program?

The federal EITC is providing huge benefits for Texas families to the tune of over $7 billion per year already. Ideally, the state would build upon that success with an EITC of its own, but it hasn't seriously considered that course of action yet. 

So right now, they could potentially create their own earned income tax credit at the state level or in the report we talk a little bit about how improvements at the federal level could help Texans.

By just increasing or expanding the credit to the population that is under under 25 and over 64 that could help up to 700,000 Texans. 

Answers have been edited for clarity and brevity. 

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