Tonight, when President Barack Obama delivers the State of the Union address to Congress and the American people, he should talk about the importance of the Earned Income Tax Credit (EITC) in addressing poverty in rural and small-town America.
At the Center for Rural Affairs, we believe the president and Congress should seriously consider proposals to enhance the EITC. We hope the president begins that process by discussing enhancements of the EITC in the State of the Union.
The EITC has been touted as one of the most effective anti-poverty public policy initiatives in the United States. Because of economic conditions, the EITC has also become a ‘rural program,’ or at least a nonurban one. It is important to rural people and their well-being. And it is important to rural and small-town economies.
In November 2014, the Center for Rural Affairs released a report examining the impact of the Earned Income Tax Credit (EITC) on rural and small-town America. The EITC is a tax credit that helps working individuals with modest incomes, particularly those with children, keep more of the income they earn from wages or from farming, ranching, self-employment, or owning a small business.
That report found, among other things, that:
- 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.
Because of the number of rural workers qualifying for and claiming the EITC, any changes are likely to disproportionately affect rural families and rural communities, both positively and negatively. For example, proposals by President Obama to expand the EITC to more workers without qualifying children, to increase the maximum value of the credit, to change the phase-in and phase-out rates of the credit, and to increase the amount of income at which taxpayers may claim the credit will continue the disproportionate qualification of rural residents.
Qualification for an expanded EITC is likely to be similar in rural and urban areas. Around 8.6% of rural married workers without qualifying children and 16.1% of rural single workers without qualifying children would be eligible for the expanded EITC. This compares to 5.4% and 9.4%, respectively, under current law.
The overarching message is clear and simple. The EITC is important to rural people and their well-being. It is also important to the economies of America’s rural cities and small towns. The positive effects the EITC has for low-income workers – poverty alleviation, increased work hours, reduction of income inequality, and progressive distribution, for example – are necessities in rural and small town-America.
You can download the report here.
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