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

How the EITC Works

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

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

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

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

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

How States Can Leverage Tax Credits for 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