Impact of Earned Income Tax Credit on Rural People

Our latest report focuses on the Earned Income Tax Credit and Rural Households. The Earned Income Tax Credit (EITC) is a credit against federal personal income taxes for working people who have low to moderate income, particularly those with children. The Census Bureau estimates that the 2012 poverty rate would have been 3 percentage points higher without the EITC.

The EITC has been promoted as one of the most effective anti-poverty public policy initiatives in the United States. Because of economic conditions, the EITC has become a “rural program,” or at least a nonurban program. It is important to rural people and their well-being. It is also important to the economies of rural communities.

Our report analyzed 2012 federal personal income tax data for every county in the nation. We found:

  • Over one in five federal income tax returns from rural county residents, 21.4%, claimed the EITC.
  • About the same number of federal income tax returns from micropolitan county residents, 21.6%, claimed the EITC (micropolitan counties are those with small cities 10,000 to 49,999).
  • More people from rural counties claimed the EITC on their federal tax returns than those from metropolitan counties. The same was true of micropolitan counties.
  • For rural and micropolitan areas combined – small cities, small towns and rural areas – 21.5% of all individual tax returns claimed an EITC, nearly 3 percentage points greater than metropolitan areas, and over 2 percentage points greater than the nation as a whole.


 
In general, we found the EITC is an example of a social safety net, anti-poverty effort, the usage of which varies by place of residence. The chart above outlines the data of EITC usage by place of residence.

Rural micropolitan county usage of EITC was highest in the South. It was lowest in the Midwest and Great Plains (though still generally larger than in Midwest and Great Plains metropolitan areas). Only Michigan, Nevada, New York, and Wyoming are states with micropolitan and rural areas that also have metropolitan areas with the highest rates of EITC returns.

As noted previously, the EITC has been touted as one of the nation’s most effective anti-poverty policy efforts. The Census Bureau estimates that the 2012 poverty rate would have been 3 percentage points higher without the EITC. In 2010, the Census Bureau stated that the EITC kept 5.4 million people, including 3 million children, out of poverty.

The EITC has become a major source of income support for low-income rural taxpayers, particularly in the South. Greater non-metropolitan area usage of the EITC follows general economic trends in the nation, including:

  • Concentration of poverty in many rural locations across the nation.
  • Rural per capita income that is 78% of urban per capita income (2012).
  • Rural earnings per job that is 71% of urban earnings per job (2012).
  • Rural poverty rate that is nearly 19% higher than the urban poverty rate (2012).

The EITC has become a “rural program,” or at least a non-urban program. It is important to rural people and their well-being. It is also important to the economies of rural communities.

You can find Earned Income Tax Credit and Rural Households here. Contact me, Jon Bailey, at jonb@cfra.org or 402.687.2103 ext. 1013 if you have any questions.