Institute on Taxation and Economic Policy

Tax Credits for Workers and Families

Many States Move Toward Higher Taxes on the Rich; Lower Taxes on Poor People

Several states this year proposed or enacted tax policies that would require high-income households and/or businesses to pay more in taxes. After years of policymaking that slashed taxes for wealthy households and deprived states of revenue to adequately fund public services, this is a necessary and welcome reversal.

The Case for Extending State-Level Child Tax Credits to Those Left Out: A 50-State Analysis

As of 2017, 11.5 million children in the United States were living in poverty. A national, fully-refundable Child Tax Credit (CTC) would effectively address persistently high child poverty rates at the national and state levels. The federal CTC in its current form falls short of achieving this goal due to its earnings requirement and lack of full refundability. Fortunately, states have options to make state-level improvements in the absence of federal policy change. A state-level CTC is a tool that states can employ to remedy inequalities created by the current structure of the federal CTC. State-level CTCs would significantly reduce…

State Tax Codes Can Help Mitigate Poverty and Impact of Federal Tax Cuts on Low- and Middle-Income Families

The national poverty rate declined by 0.4 percentage points to 12.3 percent in 2017. According to the U.S. Census, this was not a statistically significant change from the previous year. 39.7 million Americans, including 12.8 million children, lived in poverty in 2017. Median household income also increased for the third consecutive year, but this was […]

State Tax Codes as Poverty Fighting Tools: 2018 Update on Four Key Policies in All 50 States

This report presents a comprehensive overview of anti-poverty tax policies, surveys tax policy decisions made in the states in 2018, and offers recommendations that every state should consider to help families rise out of poverty. States can jumpstart their anti-poverty efforts by enacting one or more of four proven and effective tax strategies to reduce the share of taxes paid by low- and moderate-income families: state Earned Income Tax Credits, property tax circuit breakers, targeted low-income credits, and child-related tax credits.

Rewarding Work Through State Earned Income Tax Credits in 2018

The Earned Income Tax Credit (EITC) is a policy designed to bolster the earnings of low-wage workers and offset some of the taxes they pay, providing the opportunity for struggling families to step up and out of poverty toward meaningful economic security. The federal EITC has kept millions of Americans out of poverty since its enactment in the mid-1970s. Over the past several decades, the effectiveness of the EITC has been magnified as many states have enacted and later expanded their own credits. The effectiveness of the EITC as an anti-poverty policy can be increased by expanding the credit at…

Families in poverty contribute over 30 percent of their income to child care compared to about 6 percent for families at or above 200 percent of poverty. Most families with children need one or more incomes to make ends meet which means child care expenses are an increasingly unavoidable and unaffordable expense. This policy brief examines state tax policy tools that can be used to make child care more affordable: a dependent care tax credit modeled after the federal program and a deduction for child care expenses.

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Options for a Less Regressive Sales Tax in 2018

September 17, 2018 • By Aidan Davis

Options for a Less Regressive Sales Tax in 2018

Sales taxes are one of the most important revenue sources for state and local governments; however, they are also among the most unfair taxes, falling more heavily on low- and middle-income households. Therefore, it is important that policymakers nationwide find ways to make sales taxes more equitable while preserving this important source of funding for public services. This policy brief discusses two approaches to a less regressive sales tax: broad-based exemptions and targeted sales tax credits.

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Property Tax Circuit Breakers in 2018

September 17, 2018 • By Aidan Davis

Property Tax Circuit Breakers in 2018

State lawmakers seeking to make residential property taxes more affordable have two broad options: across-the-board tax cuts for taxpayers at all income levels, such as a homestead exemption or a tax cap, and targeted tax breaks that are given only to particular groups of low- and middle-income taxpayers. One such targeted program to reduce property taxes is called a “circuit breaker” because it protects taxpayers from a property tax “overload” just like an electric circuit breaker: when a property tax bill exceeds a certain percentage of a taxpayer’s income, the circuit breaker reduces property taxes in excess of this “overload”…

Building on Momentum from Recent Years, 2018 Delivers Strengthened Tax Credits for Workers and Families

Despite some challenging tax policy debates, a number of which hinged on states’ responses to federal conformity, 2018 brought some positive developments for workers and their families. This post updates a mid-session trends piece on this very subject. Here’s what we have been following:

Trends We’re Watching in 2018, Part 3: Improvements to Tax Credits for Workers and Families

This has been a big year for state action on tax credits that support low-and moderate-income workers and families. And this makes sense given the bad hand low- and middle-income families were dealt under the recent Trump-GOP tax law, which provides most of its benefits to high-income households and wealthy investors.   Many proposed changes are part of states’ broader reaction to the impact of the new federal law on state tax systems. Unfortunately, some of those proposals left much to be desired.

Poverty is Down, But State Tax Codes Could Bring It Even Lower

The U.S. Census Bureau released its annual data on income, poverty and health insurance coverage this week. For the second consecutive year, the national poverty rate declined and the well-being of America’s most economically vulnerable has generally improved. In 2016, the year of the latest available data, 40.6 million (or nearly 1 in 8) Americans were living in poverty.

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State Tax Codes as Poverty Fighting Tools

September 14, 2017 • By ITEP Staff

State Tax Codes as Poverty Fighting Tools

Astonishingly, tax policies in virtually every state make it harder for those living in poverty to make ends meet. When all the taxes imposed by state and local governments are taken into account, every state imposes higher effective tax rates on poor families than on the richest taxpayers.

Reducing the Cost of Child Care Through State Tax Codes in 2017

Low- and middle-income working parents spend a significant portion of their income on child care. As the number of parents working outside of the home continues to rise, child care expenses have become an unavoidable and increasingly unaffordable expense. This policy brief examines state tax policy tools that can be used to make child care more affordable: a dependent care tax credit modeled after the federal program and a deduction for child care expenses.

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Property Tax Circuit Breakers in 2017

September 11, 2017 • By ITEP Staff

Property Tax Circuit Breakers in 2017

State lawmakers seeking to make residential property taxes more affordable have two broad options: across-the-board tax cuts for taxpayers at all income levels, such as a homestead exemption or a tax cap, and targeted tax breaks that are given only to particular groups of low- and middle-income taxpayers. One such targeted program to reduce property taxes is called a “circuit breaker” because it protects taxpayers from a property tax “overload” just like an electric circuit breaker: when a property tax bill exceeds a certain percentage of a taxpayer’s income, the circuit breaker reduces property taxes in excess of this “overload”…

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Options for a Less Regressive Sales Tax in 2017

September 11, 2017 • By ITEP Staff

Options for a Less Regressive Sales Tax in 2017

Sales taxes are one of the most important revenue sources for state and local governments; however, they are also among the most unfair taxes, falling more heavily on low- and middle-income households. Therefore, it is important that policymakers nationwide find ways to make sales taxes more equitable while preserving this important source of funding for public services. This policy brief discusses two approaches to a less regressive sales tax: broad-based exemptions and targeted sales tax credits.

The Earned Income Tax Credit (EITC) is a policy designed to bolster the earnings of low-wage workers and offset some of the taxes they pay, providing the opportunity for struggling families to step up and out of poverty toward meaningful economic security. The federal EITC has kept millions of Americans out of poverty since its enactment in the mid-1970s. Over the past several decades, the effectiveness of the EITC has been magnified as many states have enacted and later expanded their own credits.

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Sound Tax Policy Made a Comeback in 2017

July 24, 2017 • By ITEP Staff

Sound Tax Policy Made a Comeback in 2017

2017 marked a sea change in state tax policy and a stark departure from the current federal tax debate as dubious supply-side economic theories began to lose their grip on statehouses. Compared to the predominant trend in recent years of emphasizing top-heavy income tax cuts and shifting to more regressive consumption taxes in the hopes […]

Rewarding Work Through State Earned Income Tax Credits

The Earned Income Tax Credit (EITC) is a policy designed to bolster the earnings of low-wage workers and offset some of the taxes they pay, providing the opportunity for struggling families to step up and out of poverty toward meaningful economic security. The federal EITC has kept millions of Americans out of poverty since its enactment in the mid-1970s. Over the past several decades, the effectiveness of the EITC has been magnified as many states have enacted and later expanded their own credits.

As ITEP has detailed, undocumented immigrants are taxpayers, contributing close to $12 billion a year in state and local taxes while also paying federal payroll, income, and excise taxes. In spite of these facts, Mick Mulvaney, President Trump’s budget director, has spread erroneous information to validate the administration’s cruel proposal to strip a proven anti-poverty benefit from undocumented immigrants and their children.

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EITC Victories Await in Both Hawaii and Montana

May 4, 2017 • By Aidan Davis

Two states are on the verge of embracing a tried and tested anti-poverty policy, the Earned Income Tax Credit (EITC). In the past two weeks, lawmakers in both Hawaii and Montana passed EITC legislation, which governors in both states are expected to sign. Once officially enacted, these states will join 26 other states and the […]

While every state’s tax system is regressive, meaning lower income people pay a higher tax rate than the rich, some states aim to improve tax fairness through a state Earned Income Tax Credit (EITC). Federal lawmakers established the in 1975 to bolster the earnings of low-wage workers, especially workers with children and offset some of […]

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State Tax Codes as Poverty Fighting Tools

September 15, 2016 • By Aidan Davis, Meg Wiehe

Despite this unlevel playing field states create for their poorest residents through existing policies, many state policymakers have proposed (and in some cases enacted) tax increases on the poor under the guise of "tax reform," often to finance tax cuts for their wealthiest residents and profitable corporations.

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Property Tax Circuit Breakers

September 14, 2016 • By Aidan Davis, Meg Wiehe

State lawmakers seeking to make residential property taxes more affordable have two broad options: across-the-board tax cuts for taxpayers at all income levels, such as a homestead exemption or a tax cap, and targeted tax breaks that are given only to particular groups of low- and middle-income taxpayers. One such targeted program to reduce property taxes is called a "circuit breaker" because it protects taxpayers from a property tax "overload" just like an electric circuit breaker: when a property tax bill exceeds a certain percentage of a taxpayer's income, the circuit breaker reduces property taxes in excess of this "overload"…

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Reducing the Cost of Child Care Through State Tax Codes

September 14, 2016 • By Aidan Davis, Meg Wiehe

Low- and middle-income working parents spend a significant portion of their income on child care. As the number of parents working outside of the home continues to rise, child care expenses have become an unavoidable and increasingly unaffordable expense. This policy brief examines state tax policy tools that can be used to make child care more affordable: a dependent care tax credit modeled after the federal program and a deduction for child care expenses.

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Rewarding Work Through State Earned Income Tax Credits

September 14, 2016 • By Aidan Davis, Lisa Christensen Gee, Meg Wiehe

The Earned Income Tax Credit (EITC) is a policy designed to bolster the earnings of low-wage workers and offset some of the taxes they pay, providing the opportunity for struggling families to step up and out of poverty toward meaningful economic security. The federal EITC has kept millions of Americans out of poverty since its enactment in the mid-1970s. Over the past several decades, the effectiveness of the EITC has been magnified as many states have enacted and later expanded their own credits.

State and local tax policies can often make it more difficult for low- and moderate-income individuals and families to make ends meet. Through the use of a variety of targeted tax credits, state lawmakers can help improve both the fairness of their tax systems as well as the standard of living for low- and moderate-income residents. ITEP resources on tax credits for workers and families provide general and state-specific information about the mechanics of these credits and options for reform including state Earned Income Tax Credits, property tax circuit breakers and child-related tax credits.