Columbia International Affairs Online
CIAO DATE: 8/5/2007
A Local Ladder for Low-Income Workers: Recent Trends in the Earned Income Tax Credit
2007 April
Abstract
The first half of this decade brought with it a range of economic challenges, including increased unemployment, stagnant family incomes, and rising poverty.
As a tax credit and wage supplement for low-income workers, the federal Earned Income Tax Credit (EITC) played a critical role over this time period in providing resources to low-income families to make work pay and to help them make ends meet. Research has shown the EITC to be an effective poverty alleviation tool that can help low-income families to offset short-term difficulties due to job or income loss or more generally as they work to meet financial obligations.1 It also acts as a substantial economic stimulus for the communities in which these low-income working families live, particularly in those that have high concentrations of EITC recipients.2
This study updates previous analyses by examining the magnitude and spatial distribution of the EITC in tax year 2004 (the most recent tax year for which data are available), and trends from 2000 forward.
After briefly reviewing the methodology, the paper examines EITC usage in tax year 2004, both nationally and within the central cities and suburbs of the nation’s 100 largest metropolitan areas. It then assesses national and local trends in the share of filers claiming the EITC since tax year 2000. It also explores the extent to which EITC filers in different parts of the country benefited from the Additional Child Tax Credit (ACTC). The paper concludes by analyzing the most recent information on how EITC recipients file their returns, focusing on the modest but growing role of volunteer tax preparation services in certain U.S. cities.
