Tax credits are a difficult and boring topic. Why should we advocate for this?
In his 2009 book The Rising of Bread for the World (Paulist Press), Bread founder Art Simon wrote about the work that Bread members did to significantly expand the Earned Income Tax Credit (EITC) in the mid-1980s and early 1990s. He summed up why tax credits are a hunger issue: “The EITC deserves further expansion….These programs and statistics may seem so remote from your life as to induce an afternoon nap. But, believe me, to kids who are forced to skip meals, or to a mother battling the odds to nourish them, or to a man working for a wage that forces his family to choose between heat or food, medicine or food, clothes or foodwhat I write about is the difference between desperation and hope. It is a matter of human decency on our part to tilt the arrangement toward hope.”
What do changes in tax laws have to do with ending childhood hunger?
The poverty that causes hunger is largely due to a lack of monetary resources. These tax changes would put more money in the pockets of low-income families, making it easier for them to make ends meet.
While ending childhood hunger requires stronger nutrition programs, meeting that goal also depends on increasing income for families who struggle to cover their household expenses. The tax system can help do just that. The EITC is an efficient, proven, well-targeted way to add resources—averaging close to $200 a month for families with children. With this credit, low-income families are better able to meet essential needs, including food and quality child care.
Current initiatives to end childhood hunger in the United States by 2015 include tax changes benefiting low-income people as part of a comprehensive approach. This year is when Congress will consider these changes. Our advocacy can really make a difference for hungry and poor people in the United States.
How will these tax changes be paid for? Will my taxes be raised?
No one likes ballooning deficits. It’s true these changes will cost money, but that does not translate automatically into higher taxes for other people. Congress makes choices each year as it develops the federal budget. Our voices remind elected leaders that the budget is a moral document that should reflect our nation’s best values.
It helps to remember that some tax programs have a strong economic effect that also can ultimately boost our nation’s revenues. Testifying before Congress in 2008, Mark Zandi, chief economist and co-founder of Moody’s Economy.com, said that for every $1 spent on refundable tax credits, $1.26 in economic activity is generated within local communities. In these difficult times, that kind of stimulus benefits everyone.
Why do low-income people get tax breaks like the EITC and I don’t get similar credits or deductions on my taxes?
The tax code has many incentives that encourage taxpayers to make certain fiscal choices, like saving for retirement, getting a college education, or owning a home. But many of those tax credits are out of reach for low-income earners who often do not have the same tools for those kinds of expenditures or for long-term financial investments.
By expanding the benefits low-income workers receive, including making benefits refundable, tax credits encourage work and open up more financial choices. Programs like the EITC that benefit low-income working people only accounted for $89 billion out of $760 billion, or about 12 percent, of the total amount spent through the tax code for all taxpayers in 2007.
These tax changes are for low-income people who are employed. What about the millions who are currently unemployed?
Tax credits only provide benefits to people who have a job and therefore a taxable income. However, the EITC can provide a critical support to workers who, due to the recession, worked only part of the year or took a new job working fewer hours, or for a lower wage, and have become newly eligible for the program. Our recent economic downturn means that several issues need to be addressed right away, including the need for more and better jobs. This year, however, to make progress in our tax laws, Bread has chosen to speak up so that low-income families can receive the most benefit for their work. This approach can put more money in the hands of poor families for years to come. Bread will also continue to advocate for extended unemployment benefits, boosts to job creation, and other supports to help those who may not immediately benefit from these tax credits.
Will “low-income” credits make people want to earn less money in order to qualify?
The EITC is structured so that for most people, the more wages they earn, the more benefits their families receive until they reach a set income threshold. When they reach the upper income limit, they see a decrease in their credit, not a complete loss. At its highest point, the EITC can provide a boost of 40 cents on the dollar. Yet, as wages increase and benefits decline, each additional tax credit dollar helps. This drastically reduces the potential for the EITC to act as a disincentive for higher earnings.
Without restrictions on how to spend benefits, how do we know recipients will use the money wisely to help their families?
While it’s true that we cannot control how people spend their tax benefits, the reality is that low-income families run out of money before they’re able to address all of their needs. Research shows that about half of EITC benefits are used for long-term investments like improving housing, transportation, or paying tuition. The other half is spent on purchases to meet immediate needs like food, clothing, or catching up on rent and utilities. For all of us, our spending choices are limited by our available options. Bread for the World is looking to increase options for low-income families by increasing their resources.
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