The Earned Income Tax Credit & The Child Tax Credit
Last year, 28 million American children lived in low-income families. Children lacking economic security at home face disadvantages in school. For example, 2002 University of Michigan study found that “math and reading scores for new kindergartners from the lowest socioeconomic group are 60 percent and 56 percent lower, respectively, than those of students at the highest end.” And parents who work multiple jobs in an effort to provide economic security have less time to devote to parenting.
Two key federal initiatives are working to address the economic needs of America’s families: the Earned Income Tax Credit (EITC) and the Child Credit. In 2002, the EITC lifted 2.7 million American children – a number approximately equal to the total population of Chicago – out of poverty. And President Ronald Reagan called the EITC “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” And the Child Credit helps millions of American parents to offset some of the costs of child-rearing.
Both credits enjoy broad bipartisan support. The EITC was enacted by President Richard Nixon and expanded under President Clinton, each in partnership with a congress controlled by the opposing party. Child Credit expansion was advanced by President Bush in his 2002 State of the Union address and was a major legislative priority of Democrats in Congress during the first half of this decade.
Congress can improve the economic futures of America’s working families by strengthening the EITC and the Child Credit. Specifically, the first focuses of Congress’ work in this area should be:
- Simplify the EITC. Congress’ own Joint Economic Committee has cited the EITC’s complexity as a reason that as many as 25% of eligible Americans do not claim the credit. And excessively complicated eligibility rules result in filing errors that cost the government and working families both time and money. At the very least, Congress should make this impressive program even more effective, by simplifying the EITC.
- Expand the Child Tax Credit. The Child Credit helps parents to meet some of their children’s most basic needs, but at a maximum of $1,000 and restrictions on its refundability, many needs of America’s most vulnerable children are not met by the credit. Congress should increase the Child Credit’s refundability and should consider establishing a higher maximum credit for parents who are eligible for the EITC.
- Expand Outreach. Even with simplified eligibility rules, many working families will not claim these credits because they are not aware of them. Congress should fund expansion of the Internal Revenue Service’s taxpayer education and outreach efforts on the EITC and the Child Credit.
During the 110th Congress, First Focus will promote a bipartisan debate to inform the tax policy choices facing our nation and work to strengthen the EITC and the Child Credit as powerful tools to promote stability in family economics for millions of American children.
