The Long & Short of EITC’s Value to Families

EITC

The majority of households claiming the Earned Income Tax Credit do so only for brief stretches of time, according to new research that indicates the credit’s value as a short-term aid to many families in temporary need of help.

Many people might think of the EITC as primarily a long-term income support for low- and moderate-income families, and that’s true in some cases.  But the credit is also important as a temporary aid “for short periods during shocks to income or family structure,” according to a new report published Sept. 28 in Public Finance Review. 

Among EITC filers studied between 1989 and 2006,

  • 42 percent claimed the credit for only one year at a time
  • 19 percent retained it for two straight years, and
  • only about one in five kept the credit for five or more consecutive years

Improving financial circumstances or changes in family composition might lead a household to drop EITC claims after a short period.  And while 20 percent of such families need to return to the credit for assistance after one year, only 2.3 percent reclaim it after five years, the researchers found.

“The percentage of households that return to claiming the EITC decreases as the number of years off of the EITC increases,” states the study, which was conducted by Tim Dowd, an economist with the Joint Committee on Taxation, and John B. Horowitz, associate professor of economics at Ball State University.

On average, households who claimed the EITC for the first time during the period of study kept the credit for about three years.

Perhaps it should be little wonder the EITC is widely regarded as the nation’s most effective anti-poverty policy tool: It’s important in helping families meet short- as well as long-term needs, both of which are significant in our extended economic downturn.

Clearly, this credit merits protection for the sake of the 27 million American families who depend on it.

By Sean Noble, Director of Public Policy & Research

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About National Community Tax Coalition

National Community Tax Coalition (NCTC) is the nation's largest, most comprehensive membership organization for community-based organizations offering free tax and financial services to low-income working families.

Posted on October 28, 2011, in NCTC and tagged , , , , . Bookmark the permalink. Leave a comment.

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