The Earned Income Credit has grown to become the nation’s most successful anti-poverty program since its creation in 1975. The federal Earned Income Credit is the nation’s single most effective tool for reducing poverty among working families and children. In 2012, the Earned Income Credit lifted more than 6 million people across the nation out of poverty, over half of them children. In 2012, the federal credit benefitted more than 410,000 Kentuckians – almost 25% of tax filers –and put more than $912 million into the hands of Kentucky workers to spend in the Kentucky economy. That $912 million benefitted hard-working families who would have had a difficult time making ends meet without the refundable tax credit, and those families spent that money in local communities.
A new report from the Institute on Taxation and Economic Policy takes a closer look at how individual states are impacted by enacting state Earned Income Credits. The report focuses on the impact a state Earned Income Credit has on a state’s tax distribution, or how much of people’s income they pay in taxes. For more information on the impact on Kentucky, see ITEP’s report here.
ITEP’s report highlights just one of the many ways Kentucky and its families would benefit from enacting a refundable Earned Income Credit. This change would leverage and build on the proven success of the federal credit. It is a small investment that would make a big difference in the lives of working Kentucky families. Twenty-five states and the District of Columbia have enacted state EICs, because they recognize the benefits to businesses, families, and local economies. The credit is refundable in all but four of these states.
An earned income credit in Kentucky would:
- Encourage and reward work: The Earned Income Credit has been shown to help more parents, particularly single mothers, move into the workforce. State Earned Income Credits contribute to even higher increases in workforce participation.
- Supplement earnings for full-time workers earning low to moderate wages: People who work full time should be able to support their families and stay out of poverty. Unfortunately, for many low wage earners this is not the case. The Earned Income Credit helps ensure that hardworking people are able to meet basic needs.
- Stimulate the local economy: In the last decade, several studies have measured the economic effect of the credit. Every $1 of Earned Income Credit refund for taxpayers generates local economic activity worth: $1.07 in Nashville; $1.40 in Fresno; $1.58 in San Antonio; and $1.67 in Michigan.
With so many well-documented benefits, it is time for Kentucky lawmakers to support working families and enact a state Earned Income Credit.