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CIAO DATE: 3/5/2007
Using the Earned Income Tax Credit to Stimulate Local Economies
Alan Berube
November 2006
Abstract
Over the 30 years of its existence the federal Earned Income Tax Credit (EITC) has been described variously as a wage supplement, a program to reduce tax burdens, an antipoverty tool, a welfare-to-work program, and a form of labor market insurance. The program has enjoyed expansions under both Republican and Democratic administrations, and in 2006, the EITC will provide more than $40 billion to low-income working families. The credit lifts nearly 5 million Americans above the poverty line each year. Moreover, because the EITC aids only those families with earnings from work, researchers have credited it with raising labor force participation levels and helping families transition from welfare to work.
Yet a significant proportion of eligible workers continue to miss out on the credit. In response, a growing number of state and local officials have begun concerted efforts to ensure that all eligible workers gain access to the credit's full benefits. They do so not only to support their constituents' well-being but also because they have come to identify the credit as a tool that promotes local and regional economic health. These local leaders are demonstrating the EITC's importance as a critical federal investment in local and regional economies around the country. This paper explores the benefits that families and communities could receive if the full potential of the EITC were realized.
