September 12, 2019

New Report: A Chicago EITC Would Benefit up to 1 Million Chicago Families

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Report outlines policy options for Chicago Resilient Families Initiative Task Force Recommendations

A new report reveals that a city-level, Chicago Earned Income Tax Credit would boost the economic security of 546,000 to 1 million of the city’s working families, the Institute on Taxation and Economic Policy (ITEP) and Economic Security for Illinois said today.

A February 2019 report by the Chicago Resilient Families Initiative Tax Force recommended a city-level EITC to help more Chicagoans achieve economic security—a core policy also prescribed by the Metropolitan Planning Council in its roadmap to a more equitable future. ITEP produced a cost and distributional analysis of six EITC policy designs, which outlines the average after-tax income boost for families at varying income levels. The most generous policy option would increase after-tax income for more than 1 million working families with an average benefit, depending on income, ranging from $898 to $1,426 per year.

“State- and city-level EITC expansions build on the success of the federal credit and increase economic security for even more working families,” said Lisa Christensen Gee, director of special initiatives at ITEP and lead author of the study. “For cities such as Chicago that are exploring ways to improve family economic wellbeing, implementing an EITC is a proven policy option.”

Among the six policy designs analyzed in the report are two simple options that use the same eligibility criteria as the existing federal EITC and provide credits that equal 5 percent or 10 percent of the federal credit value. These options would put $41 million and $81 million per year, respectively, into the pockets of 546,000 or 630,000 working families. The most ambitious credit would return $588 million per year to workers, benefiting about 1.04 million families and the local communities within which they spend those dollars. The more modest proposals would boost Chicago families’ after-tax income, on average, between $108 to $210, and the more ambitious proposal would boost incomes from $898 to $1,426 on average.

“Combined with the federal credit, a Chicago EITC could potentially provide a meaningful income boost for families, particularly the more expansive approach,” Christensen Gee said.

The release of this report comes on the heels of the annual release of national Census data on poverty and income. The report revealed that refundable tax credits, including the federal EITC, lifted 7.9 million people out of poverty in 2018. State and local EITCs help build on that success.

Twenty-nine states currently have EITCs. If Chicago implemented an EITC, it would join at least three other local governments that have implemented EITCs to strengthen family economic security. Notable among the jurisdictions leading on local EITC development are the District of Columbia, New York City, and Montgomery County, Md. According to the latest data available, the credits returned $64 million, $105 million and $24.5 million respectively to working families.

“The Chicago Resilient Families Initiative Tax Force outlined a vision of a Chicago that is better able to help residents achieve economic security. A city-level EITC clearly could help the city meet that critical goal,” said Harish Patel, director at Economic Security for Illinois. “As the ITEP analysis shows, not only would a city EITC help families, it could benefit hundreds of thousands of the city’s children, infuse much-needed cash into our neighborhoods, and benefit our small business community. As Chicago examines its budget and priorities, we have an opportunity to make bold changes that improve economic wellbeing of our city’s families.”