Since its creation in 1975, the Earned Income Credit has grown to become the nation’s largest and most successful anti-poverty program. In 2011, the Earned Income Credit lifted more than 6 million people out of poverty. Undoubtedly, the Earned Income Credit benefits millions of hard-working families who would have a difficult time making ends meet without the refundable tax credit. Increasingly, however, the Earned Income Credit is also being recognized for its positive impact on businesses, communities, and local economies.
Small businesses depend on reliable workers. Not only is the Earned Income Credit’s ability to help people move into the workforce well-documented, the credit also helps already-working families maintain existing employment by providing increased funds for necessities like transportation or childcare. A Kentucky Earned Income Credit could help strengthen these effects. Additionally, a state Earned Income Credit could help the long-term growth of Kentucky businesses by providing a more skilled workforce in the future. Research has established a direct link between families of young children receiving additional income through the Earned Income Credit and the improvement of their children’s math and reading scores.
Research shows that families most often use the Earned Income Credit to pay for basic necessities like making rent and utility payments, purchasing groceries and clothing, or repairing vehicles. This spending occurs within the community creating a multiplier effect—estimated by some economists to be as high as 2 times the original amount—that helps stimulate local economies. A number of studies have demonstrated that every Earned Income Credit refund dollar received by taxpayers generates local economic activity worth: $1.07 in Nashville; $1.40 in Fresno; $1.58 in San Antonio; and $1.67 in Michigan. In many metropolitan areas, the Earned Income Credit infuses more cash into local neighborhoods than do tradition “urban” federal programs. For instance, in Jefferson County, the federal Earned Income Credit infuses more than $400,000 per square mile. Enacting a state Earned Income Credit would increase this infusion by tens of thousands of dollars more.
Clearly, the Earned Income Credit benefits not only people, but also places. A state-level Earned Income Credit could make these benefits even more pronounced. During the 2014 General Assembly, legislators should follow the lead of twenty-eight other state and local governments and enact a Kentucky Earned Income Credit. This one investment could pay big dividends for Kentucky’s businesses, communities, and local economies.