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Rewarding Work Through the Tax Code

This report from The Brookings Institution discusses the vital role of the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) in supporting low-income families. It provides insights into federal expenditures on these credits, highlights the challenges faced by recipients—including missed opportunities and reliance on costly refund loans—and offers recommendations for states to improve outreach and access. Strategies include community support for tax preparation and the adoption of state-level EITCs to enhance financial stability among low-income workers.

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Rewarding Work Through the Tax Code

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  1. The Brookings Institution Rewarding Work Through the Tax Code Center on Urban and Metropolitan PolicyAlan Berube, Senior Research Analyst Maximizing Income and Assets to Help Low-Income Workers NGA Webcast July 9, 2003

  2. How the EITC Works

  3. EITC and CTC Are Large Sources of Support for Low-Income Families Projected Federal Expenditures, FY 2004 CTC Food Stamps EITC TANF

  4. EITC Receipt is often as High in Rural Areas as in Cities Georgia, TY 2000

  5. At Least 15 Percent of Eligible EITC Recipients Miss Out on the Credit < 5% 5% to 10% 10% to 15% 15% to 20% > 20% Percentage of Eligible EITC Recipients Failing to File Taxes, TY 1996

  6. < 20% 20% to 30% 30% to 40% 40% to 50% > 50% Too Many EITC Recipients End Up with Expensive “Rapid Refund” Loans Percentage of EITC Recipients Purchasing Refund Loans, TY 1999

  7. A Growing Number of States Are Adopting State-Level EITCs States with and without State EITCs, 2003 No State EITC No State Income Tax Refundable State EITC Nonrefundable State EITC

  8. How States Can Leverage Tax Creditsfor Low-Income Families • 1. Ensure that low-income families know about the EITC and CTC • Examples: Delaware, Washington • 2. Support community organizations that provide free or low-cost tax preparation; enact tougher disclosure on “refund loans” • Examples: Illinois, Minnesota • 3. Enact or expand state EITCs to help low-income families cope with other tax hikes or service cuts • Examples: New York, Indiana

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