P&P June 2016

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child care. A chart showing the wage supplemental impact of the EITC, other tax credits, and SNAP benefits that can be replicated in all other states is included here using New York State as the example. The New York chart dem- onstrates that, when combined with other cash-like tax credits and benefits, the EITC can boost the annual income of a single parent working full time in a $9-an-hour job to the equivalent of $16.81 an hour. The EITC is designed to ensure that full-time workers do not have to live in poverty—particularly workers who are supporting families. This article explores the history and impact of the EITC, shows how it can work in concert with minimum wage laws as a poverty- fighting measure, and identifies ways of improving the credit. History and Background The federal EITC was enacted in 1975 to offset the burden of payroll taxes and provide a work incentive for low- and moderate-income families. The EITC is refundable—meaning that when the tax credit exceeds the amount of taxes owed, the difference becomes a tax refund. As a result, it effectively creates a form of negative income tax. For tax year 2014, the federal EITC provided about 28 million households with $65 billion in tax credits. 1 As most

or working-age individuals and their families, having a job and staying in the work- force are critical to achieving self-sufficiency and

economic well-being. Transitioning from federal or state cash assistance to gainful employment and indepen- dence is no easy task. Many recipients of public assistance, when they move into the workforce, have low-wage employment and, therefore, rely on transitional work supports as they climb the economic ladder and estab- lish a career pathway. Low-income working families can receive a significant annual wage supplement through the Earned Income Tax Credit (EITC), which is available to eligible filers of federal tax returns and state tax returns in the 26 states and the District of Columbia that have their own EITC program. The EITC is the most important of such wage supplements, followed closely by the cash transfer benefits from the Supplemental Nutrition Assistance Program (SNAP). Both programs phase benefits down very slowly as income from employment increases, thus avoiding the cliff effect inherent in other benefit programs, such as

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June 2016 Policy&Practice