Building an Economy that Works for Everyone

Fiscal cliff deal includes extension of working family tax credits

The most recent fiscal cliff deal extended provisions of the Earned Income Tax Credit and the Child Tax Credit for five more years – a move that will continue reducing poverty in the U.S.

The Earned Income Tax Credit (EITC) is a federal income tax credit generally used by working people with low to moderate incomes. First instituted in 1975, it lowers taxes on lower- and middle-income working households. In 2012 alone, it saved each qualifying Washingtonian an average of $2,000. The Child Tax Credit (CTC) is a tax credit also aimed at low and middle income families, allowing parents to claim up to $1,000 for each of their children.

Together, the EITC and refundable portion of the CTC were responsible for lowering the overall poverty rate by 2.8% in 2011, according to a recent report from the Brookings Institution. The impact on child poverty was even greater, lowering child poverty by a full 6.3%. In Washington state, just over 208,000 people were kept out of poverty by these federal policies, including more than 100,000 children, between 2009 and 2011.

The map below, from the Brookings Institution analysis, shows the average number of people kept out of poverty, by state, thanks to the EITC and CTC.

eitc and ctc map from brookings

The Brookings report concludes by suggesting states should adopt their own EITC and CTC credits (or expand current existing policy). Washington state, one of nine U.S. states with no personal income tax, passed a state EITC in 2008 equal to 10% of the federal credit, but the credit is yet to be funded by the legislature.

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