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Benefits of Doubling Illinois’ Earned Income Tax Credit

Voices for Illinois Children’s President Tasha Green Cruzat recently testified before the Illinois House Revenue and Finance Committee on the importance of increasing the state’s Earned Income Tax Credit (EITC).

The federal EITC is one of the most effective poverty fighting measures. A federal tax credit for low- and moderate-income working people, the EITC allows an individual to take a percentage of earned income as a credit against his or her tax liability. If the amount of the credit (based on income, marital status, and number of children) exceeds the individual’s tax liability, the federal government refunds the balance to the taxpayer. In 2015, the federal EITC kept 6.5 million people out of poverty. More than half of them were children.

federal EITCTwenty-six states and the District of Columbia have enacted state EITCs. In Illinois, a taxpayer receiving the federal EITC may take 10% of that amount on his or her state income tax return. The credit is also refundable in Illinois. In Tax Year 2014, more than 900,000 Illinois taxpayers took advantage of the state EITC for an average of $245. HB 2475 would increase the state’s EITC from 10% of the federal EITC to 20% over five years. Given projected increases in the federal EITC, the bill could result in an additional $265 annually (after five years) for taxpayers claiming the Illinois credit. That’s additional money used for basic necessities:  buying groceries, paying for car repairs, or helping to pay for child care.

State EITC

A study of state EITC’s done by the University of New Hampshire[1] found they resulted in lower use of public health insurance and greater use of private health insurance for children. It also showed that mothers reported improvements in their children’s health (particularly for children ages 11 to 14).

Other studies show children in families receiving the EITC score higher on educational tests and are likelier to graduate from high school[2].

The state EITC is a good investment for Illinois citizens as well as communities around the state. A review of economic studies by the U.S. Conference of Mayors shows that for every EITC dollar increase received by low and moderate income families, there’s an economic multiplier in the money generated in local economies of 1.5 to 2[3].

  • In a study of EITC benefits received by Michigan residents in 2006, every EITC dollar spent generated $1.67 in new economic output in the state[4].
  • A 2010 study of 58 California counties showed $3.6 billion in federal EITC dollars spent locally generated $5.08 billion of economic output, $1.24 billion in labor income and $355 million in tax revenue[5].
  • A 2004 study of the impact of the federal EITC in San Antonio area showed every EITC dollar received resulted in a local economic impact of $1.58[6].

The actual dollars returned to a community may depend on how many taxpayers claim the credit in each year, the amount of the credits, and the retail market in a community. However, the evidence is clear that investing in the EITC produces economic activity in the taxpayer’s community and tax dollars for both the state and local governments.

Overall, the EITC is a proven winner. It helps lift families out of poverty, improves the health and educational outcomes of family members, and positively impacts local communities.  Voices strongly encourages the state to double its EITC.

Written by Mitch Lifson


[1] Baughman, Reagan. 2012. The Effects of State EITC Expansion on Children’s Health. Carsey Institute. University of New Hampshire

[2] Caines, Roxy. 2017. 5 Ways the EITC Benefits Families, Center on Budget and Policy Priorities

[3] U.S. Conference of Mayors. Dollar Wi$e Best Practices. 2ND Edition. Earned Income Tax Credit.

[4] Anderson Economic Group, LLC. 2006. Economic Benefits of the Earned Income Tax Credit in Michigan.

[5] Avalos, A., and Alley, S. 2010. The economic impact of the Earned Income Tax Credit (EITC) in California. California Journal of Politics and Policy.

[6]Texas Perspectives Inc. 2004. Increased Participation in the Earned Income Tax Credit in San Antonio


 

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