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Increasing Tax Credits for the Working Poor

by | Jan 15, 2014 | Government Entities

iStock_000005509580Small_200_150The fight to raise the minimum wage has been getting hotter and many states are split on how to handle this issue. There is one issue that does not seem to have the same bipartisan discord that the minimum wage issue elicits; this is the federal Earned Income Tax Credit (EITC). Many state lawmakers are seeing the solution to the rising poverty rate in expanding the tax credits for the working poor.

The EITC helps the working poor by reducing the amount of taxes a person or family owes on annual income and wages. This credit is refundable, so if the size of the credit exceeds the amount of taxes owed, the remaining value of the credit goes to the tax filer. This program was designed back in the 1970s to incentivize finding a job and increase earnings since the size of the credit would increase as one’s earnings increased.

Overall, most states like the credit and 25 states have local tax credits that match a percentage of the federal credit. Five states have enacted laws that strengthen the federal program. The EITC is a program that both conservatives and liberals feel is a beneficial program for the working poor. This is evident in that 18 states have considered 29 bills that dealt with changes to the state versions of the federal tax credit.

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