2010 Offering of Letters website ready

February 3, 2010 at 8:52 am Leave a comment

 

2010 Offering of Letters Resources: Tax Credits

 

In 2010, Bread for the World members will urge Congress to adopt changes to U.S. tax policy that will benefit low-income families.

But what do tax credits have to do with hunger?

This year, taxes will be near the top of the agenda in Congress because a series of tax cuts and tax credits enacted in recent years will expire. In the midst of the debate over which taxes to change and which to renew, the needs of low-income people could easily be lost. Our 2010 Offering of Letters will ask Congress to protect and strengthen key tax credits that can make a big difference for low-income workers and their families.

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 credits are out of reach for low-income earners who often do not have the same tools for those kinds of expenditures or long-term financial investments.

The Earned Income Tax Credit (EITC) was established in 1975 to help low-income families hold on to more of their earnings. The EITC is a refundable tax credit geared primarily toward families who have one or two children. According to a 2006 Brookings Institution study, the EITC lifts more children above the poverty line than any other government program. In 2005, more than 22 million households applied for the EITC and received an average of $1,864. As a result, an estimated 5 million people, including 2.6 million children, were lifted above the poverty line.

As effective as this simple program is, it could be made even more helpful to low-income families. For example, the size of the tax credit does not increase for families with more than three children even though their poverty rates are higher. Filing for the EITC is also complicated, leading most eligible families to use commercial tax preparation services. This means that EITC filers each pay hundreds of dollars every year—money needed to support their families—for tax preparation. Tax filers are also tempted to surrender much of their refund with Refund Anticipation Loans—short-term, high-interest loans based on the tax filer’s expected refund—because their immediate needs are so pressing.

Another credit, the Child Tax Credit, is worth up to $1,000 for each child under age 17 claimed on a worker’s tax return. It provides close to $50 billion to families with children every year. Until recently, this credit was not available to families with incomes below $11,300, meaning nearly 10 million children living in poverty did not benefit from the credit. We want to ensure that recent improvements stay in place beyond their 2010 expiration.

In 2005, half of all African-American children, 46 percent of Hispanic children, and 18 percent of white children were in families that did not qualify at all or qualified for less than the full amount of the credit.

  • We will urge Congress to protect and strengthen the Earned Income Tax Credit (EITC) and the Child Tax Credit.
  • We will also seek additional funding for Volunteer Income Tax Assistance (VITA) sites, which provide financial education and free tax preparation assistance to low-income people.

This Offering of Letters will help policy makers understand that ending childhood hunger requires a broader array of policies that address the issue of poverty as well as strong nutrition programs aimed at low-income children and their families.

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