Federal EITC Kept 2 Percent of the Population Out of Poverty

Greatest Poverty Reductions in Texas, North Carolina, and Arizona
November 17, 2015

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Summary

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This brief documents the proportion of Americans who would have been poor absent the Earned Income Tax Credit (EITC), all else being equal, across 2010–2014. We examine Supplemental Poverty Measure (SPM) rates as well as hypothetical increases in the rates of SPM poverty in the absence of federal EITC benefits. It is important to note that we do not model behavioral changes that might result from the removal of EITC benefits, so the analyses presented here are a simplified representation of such a hypothetical scenario. The SPM is an obvious choice for this analysis because unlike the Official Poverty Measure (OPM), which only accounts for before-tax cash income, the SPM also considers in-kind benefits, tax credits, and out-of-pocket work and medical expenses when estimating resources. We present SPM rates for all individuals (Table 1) as well as for children only (Table 2), analyzing trends across regions, metropolitan status, and by state. Importantly, geographic differences in the cost of housing are accounted for in the SPM rates, and consequently the analyses presented here give a more accurate sense of the poverty reducing impact of EITC benefits.1

 Data

This brief consists of a pooled sample using the Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC) between the years of 2011–2015. The CPS ASEC is sponsored by the Bureau of Labor Statistics (BLS), Census Bureau, and the Department of Health and Human Services (HHS), providing annual income, migration, benefits, and insurance information for a nationally representative sample of Americans. The CPS uses a tax model calculator to simulate tax income instead of collecting tax information directly from respondents. Payroll taxes for individuals with earned income are simulated first, and then tax-filing units are estimated based on marital status and household relationship structure.

Once the potential tax-filing units have been determined, state and federal taxes and credits are simulated for each unit (for more information, see https://www.census.gov/hhes/www/income/publications/oharataxmodel.pdf). Because tax credits are simulated, it is possible that some families who receive the EITC may not be included and others who are not eligible for EITC benefits (for example, undocumented immigrants) may be assigned a value due to errors in the tax model.