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Tax credit can help keep families from poverty, researcher says

The top of a form 1040 individual income tax return.
Tim Boyle/Getty Images
File photo: A new report from the Public Policy Institute of California says the Earned Income Tax Credit can help families stay out of poverty.

A federal safety net program can help Californian families from falling into poverty, according to the author of a new report looking at the effect of the Earned Income Tax Credit on family income.

The EITC program was started to help keep working families with children from slipping into poverty. It’s a federal program that can lower a family’s taxes when one filer has a full time job, but the family’s gross income is less than about $50,000, depending on the number of kids.

The new report, compiled by Caroline Danielson of the Public Policy Institute of California, takes a different look at family income in California through the lens of this federal tax credit. For the 2012 tax year, PPIC found that one in five Californian tax filers qualified for credit based on their income and number of children.

Imperial County had the highest percentage of tax filers applying for the EITC — 43.4 percent of that county’s filers applied. While this seems high, Danielson said Imperial’s poverty may have been much worse if not for this EITC tax credit.

“According to the official poverty rate, poverty in Imperial County and some other inland California counties, is quite high. The EITC is counted in family earnings so it does help families stay out of poverty,” she said.

In Los Angeles County, 23.4 percent of all tax filers applied for the tax credit in 2012. Danielson notes that tax filers with no Social Security number and those in the country through illegal immigration are not eligible for the tax credit.

The report states that the federal EITC is one of the largest social safety net programs in the state. “In California, 3.1 million tax filers (most of whom had at least one child) claimed $7.3 billion in EITC for the 2013 tax year,” according to the report.

Danielson noted that the California state legislature is currently considering a state earned income tax credit to supplement the federal tax credit. Twenty-six other states have their own EITC. A state EITC would help counties better meet the needs of families close to the poverty line, she said.

“California is a state where counties play a big role in the social safety net, where county welfare departments help families find the resources they need when they qualify for [welfare] programs.” Danielson believes adding state EITC dollars to a working-poor family’s income will help bring them even further away from the edge of poverty.

Some Republicans oppose the EITC as too expensive and view it as a “handout to the poor,” the Wall Street Journal reports. Critics also point to an IRS report that found 24 percent of EITC payments in 2013 were made in error, with recipients both overpaid and underpaid.