Government programs designed to support struggling families are crucial to ensuring that the needs of all children are met. The Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) have been effective and powerful tools for reducing child poverty across the nation. These tax credits – both federal and state – ease financial burdens for low- to moderate-income working families, often providing a way out of dismal circumstances and creating long-lasting, positive effects. These lifelong benefits include employment incentives, boosted earnings, and improvements in health and educational achievement.
According to IRS data, approximately 21 million mothers of working families benefitted from the EITC or CTC in 2012. In Nebraska, around 106,000 mothers (single or married) received at least one of these tax credits.
Multiple studies have shown that the EITC is often responsible for lifting and keeping working families above the poverty level. The Census Bureau estimated that the poverty rate in 2012 would have been 3 percentage points higher without the financial assistance that the EITC provides and the EITC kept 3 million children out of poverty in 2010. Studies have also indicated that the EITC is particularly important for rural communities and their economies. In Nebraska, 42,876 children live in rural areas.
In order to qualify for these tax credits, individuals must be working and paying income taxes. EITC and similar tax credits encourage work by allowing families to receive more financial gain from their work efforts. This is particularly important as median income has fallen in Nebraska over the past decade and purchasing power is substantially reduced. Nebraska joined other states in 2006 by establishing a state EITC program. In 2013, this program put $31.1 million back into the pockets of 137,030 families who were then able to spend this hard-earned money in their local communities on basic needs.
The initial state EITC was 8% of the federal credit, which was increased to 10% in 2007 by the Legislature. This legislative season, a bill introduced by Senator Pansing Brooks (LB 495), would have gradually increased the state EITC to 15% of the federal credit by 2017. Although this bill did not move forward this year, we hope that Nebraska will continue to look at ways to improve the EITC as an effective tool for keeping families out of poverty.
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