Poverty - Tax Relief For The Poor

Both conservatives and liberals hailed the Tax Reform Act of 1986 (PL 99-514) as a major step toward relieving the tax burden of low-income families, one group of Americans whose wages and benefits have been eroding since 1979. The law enlarged and "inflation-proofed" the

TABLE 3.7
Median income in 2001 and 2002
(Households and people as of March of the following year)

	2001		2002
	Median money income (in 2002 dollars)		Median money income
Characteristic	Number (thousands)	Value (dollars)	Number	Value (dollars)	Percent change in real money income 2002 less 2001
Households
All households	109,297	42,900	111,278	42,409	−1.1
Type of household
Family households	74,329	53,106	75,596	52,704	−0.8
Married-couple families	56,747	61,433	57,320	61,254	−0.3
Female householder, no husband present	13,143	28,590	13,620	29,001	1.4
Male householder, no wife present	4,438	41,363	4,656	41,711	0.8
Nonfamily households	34,969	26,039	35,682	25,406	−2.4
Female householder	19,390	20,586	19,662	20,913	1.6
Male householder	15,579	32,826	16,020	31,404	−4.3
Age of householder
Under 65 years	86,821	50,010	88,619	49,510	−1.0
15 to 24 years	6,391	28,644	6,611	27,828	−2.9
25 to 34 years	18,988	45,797	19,055	45,330	−1.0
35 to 44 years	24,031	54,168	24,069	53,521	−1.2
45 to 54 years	22,208	58,968	22,623	59,021	0.1
55 to 64 years	15,203	46,593	16,260	47,203	1.3
65 years and over	22,476	23,486	22,659	23,152	−1.4
Nativity of the householder
Native born	95,884	43,600	97,365	43,222	−0.9
Foreign born	13,413	38,552	13,912	37,979	−1.5
Naturalized citizen	6,069	44,667	6,423	45,430	1.7
Not a citizen	7,344	35,366	7,490	33,980	−3.9
Region
Northeast	21,128	46,443	21,229	45,862	−1.3
Midwest	25,755	44,531	25,630	43,622	−2.0
South	39,151	39,523	40,107	39,522	–
West	23,263	45,804	24,313	45,143	−1.4
Residence
Inside metropolitan areas	88,112	45,938	90,075	45,257	−1.5
Inside central cities	32,540	37,315	33,543	36,863	−1.2
Outside central cities	55,572	51,503	56,532	50,717	−1.5
Outside metropolitan areas	21,185	34,135	21,203	34,654	1.5
Earnings of full-time,
year-round workers
Male	58,712	38,884	58,761	39,429	1.4
Female	41,639	29,680	41,876	30,203	1.8
–Represents zero or rounds to zero.
SOURCE: Adapted from Carmen DeNavas-Walt, Robert W. Cleveland, and Bruce H. Webster, Jr., "Table 3. Comparison of Summary Measures of Money Income and Earnings by Selected Characteristics: 2001 and 2002," in Income in the United States: 2002, Current Population Reports, Consumer Income, U.S. Census Bureau, [Online] http://www.census.gov/prod/2003pubs/p60-221.pdf [accessed January 3, 2004]

Earned Income Tax Credit (EITC), which provides a refundable tax credit that both offsets taxes and often operates as a wage supplement. Only those who work can qualify. The amount is determined, in part, by how much each qualified individual or family earned. It is also adjusted to the size of the family. To be eligible for the family EITC, workers must live with their children, who must be under nineteen years old or full-time students under twenty-four years old.

The maximum credit for 2003 was $2,547 for taxpayers with one child, $4,204 for taxpayers with more than one child, and $382 for persons with no children. Families get less if their income is very low because they are also eligible for public assistance. Working families with one or more children receive the maximum benefit if their earnings are at least $10,700, up to an adjusted gross income of no more than $14,600. Benefits phase down gradually when income surpasses $15,000 and phase out entirely for families with two or more children earning more than 33,000. (See Figure 3.4.)

The largest EITC benefits go to families that no longer need welfare. The gradual phaseout and the availability of FIGURE 3.3
Poor families with children, 2000 the EITC at above-poverty income levels help to stabilize a parent's employment by providing additional money to cover expenses associated with working, such as child care and transportation. Research has found that the EITC has been an effective work incentive and has significantly increased work participation among single mothers.

Those who do not owe income tax, or who owe an amount smaller than the credit, receive a check directly from the Internal Revenue Service (IRS) for the credit due them. Most recipients claim the credit when they file an income tax form. The EITC lifted more than 4.8 million people, including 2.6 million children, out of poverty in 2003.

Although the Tax Reform Act of 1986 has helped ease the burden of federal taxes, most of the poor still pay a substantial share of their income in state and local taxes. To relieve this tax burden, seventeen states have enacted a state EITC; sixteen states base EITCs on the federal credit. These state programs boost the income of families that move from welfare to work and prevent states from taxing poor families deeper into poverty.