Why are state EITCs important now more than ever?

A state EITC can:

• Stimulate the economy at the state and local levels during an economic slowdown by providing significant relief to low-income working families;
• Raise parental employment levels, lift family incomes, and improve school achievement for elementary school and pre-school-age children according to new evaluations of welfare reform programs that include employment-based fiscal incentives like the EITC; and
• Support welfare reform by rewarding work and increasing take-home pay for parents making the transition from welfare to work.

Research shows that many EITC recipients use their EITC refunds to make investments that enhance their economic security and promote economic opportunity in their neighborhoods, making them safer and better places to work and live.

Finally, there is a new way to fund a state EITCs that does not draw on shrinking state budgets. Federal welfare law allows Temporary Assistance for Needy Families (TANF) funds to be used to fund the refundable portion of the credit.

For more information on state Earned Income Tax Credits, please see “A HAND UP: How State Earned Income Tax Credits Help Working Families Escape Poverty in 2006,” by Ami Nagle and Nicholas Johnson at the Center on Budget and Policy Priorities.