People of different political stripes frequently argue about the best ways to attack child poverty. More carrots? More sticks? Here’s a fact, however, that’s beyond dispute: Research shows that the Earned Income Tax Credit (EITC) is the one of the most effective tools at our disposal for lifting children out of poverty.
The Earned Income Tax Credit (EITC) is a refundable income tax credit for low-income working individuals and families. At the federal level, the EITC was started during the Nixon administration and expanded by Ronald Reagan as a way to reward and encourage work and deemphasize welfare.
Congress originally created the tax credit legislation in 1975, in part to offset the burden of social security payroll taxes. EITC is designed to “make work pay.” It rewards low-wage work by decreasing the taxes that low-wage workers pay on their earnings and by supplementing their wages. The intention is to move a family with a full-time minimum-wage worker above the poverty line, so as to avoid raising children in poverty.
The EITC is the largest poverty-reduction program in the U.S. The Census Bureau found that the EITC lifted 5.4 million above the poverty line in 2010. When using the new alternative poverty measure, that number climbs to 6.25 million nationally. Furthermore, the Center on Budget and Policy Priorities (CBPP) reports that in 2009, the poverty rate among children would have been nearly one-third higher without the EITC (3.3 million of the 6.6 million people lifted out of poverty in 2009 were children). The EITC lifts more children out of poverty than any other single program or category of programs.
During the first year of the North Carolina EITC, more than 800,000 North Carolinians claimed the EITC, putting a critical $59 million back in the pockets of low-wage workers. The average state EITC value is $113. That figure may not seem like much to some of us. However, $113 may represent a week of food, a car payment to get to work, or school supplies and lunches for a child.
Nearly half of all North Carolina children (46 percent) now live in low-income families. In 2009, an estimated 500,000 of our children lived in families earning less than the federal poverty level ($22,050 for a family of four). Between 2007 and 2009 the number of North Carolina children living in poverty increased 18 percent—no doubt the result of the state losing more than 300,000 jobs. Perhaps the most telling fact of our children’s eroding economic security is the rapid growth in the number of children living in extreme poverty-(half the federal poverty level for a family of four or roughly $11,000 annually). The North Carolina numbers are shocking. Today, one of every ten children in North Carolina lives in extreme poverty.
Children who experience economic hardship and excessive adversities encounter what researchers call “toxic stress” that disrupts brain circuits, damages the architecture of developing brains and weakens the foundation for future learning, health and earnings potential. The consequences of economic deprivation during childhood linger into adulthood, often making it difficult to escape poverty.
Friday, January 27, 2012 was EITC Awareness Day. It was an important opportunity for those who care about our children to lift up and celebrate this critical and effective program – especially given that no other tool helps families so much, feeds money back into the economy and lifts children out of poverty.
Let’s hope, however, that, this year, it was just the beginning. In these tough economic times in which effective tools with broad-based, bipartisan support are so illusive, we would do well to celebrate the EITC all year long.
Barbara Bradley is the President and CEO of Action for Children North Carolina.