Poverty Data Demonstrate the Tax Code's Poverty-Fighting Ability


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For the past five years, U.S. Census has released the Supplemental Poverty Measure (SPM) along with the traditional statistics measuring poverty and income. The supplemental measure provides valuable insight into how government programs and the tax code impact poverty.

What we know and what the SPM confirms is tax policy, as well as social service programs, makes a difference. Two of the most important anti-poverty credits for working families, the federal Earned Income Tax Credit (EITC) and the refundable portion of the Child Tax Credit (CTC) are considered under this comprehensive measure of poverty. At 14.3 percent the supplemental poverty rate is higher than the 13.5 percent official poverty rate; however, it is lower than it would have been in the absence of these highly effective anti-poverty programs. In 2015, the combined impact of the EITC and CTC decreased the supplemental poverty rate from 17.2 to 14.3 percent, lifting 9.2 million people, 4.8 million of which are children, out of poverty. Thanks in part to these credits, the supplemental poverty rate for children is even lower than the official poverty rate (16.1 percent compared to 20.1 percent).  

Experts from multiple government agencies worked together to develop the supplemental poverty measure in part to address concerns that the official measure does not produce an adequate nor accurate picture of those living in poverty. By factoring in expenses such as child care, out-of-pocket medical costs, payroll and income taxes, and policies such as the EITC, the Supplemental Nutritional Assistance Program (SNAP), housing assistance, and other key anti-poverty programs, it provides a broader picture and more accurate measure of the true cost of making ends meet.

Both the EITC and CTC make a compelling case for the use of tax policy as a tool to mitigate poverty. Just last year, Congress reconfirmed its commitment to supporting and improving these proven anti-poverty programs by making permanent vital enhancements. This move was a big step forward for low-wage workers across the country. It will prevent 16.4 million Americans from being pushed into or deeper into poverty. For more on that impact by state click here for an interactive map.

A Good Policy with Room for Improvement

Lawmakers should take steps not only to maintain but to strengthen and preserve effective anti-poverty programs such as the EITC and CTC.

For instance, the EITC could be improved to reduce poverty rates among workers without children. Currently, this group is only eligible for a fraction of the credit that families with children can receive–a $506 maximum credit in 2016 as compared to a $3,373 maximum for families with one child. Additionally, to claim the credit, individuals without children must be 25 years old. As a result, vulnerable young adults who are trying to gain a foothold in the workforce are excluded from the EITC’s work-promoting, poverty-reducing benefits.

Fortunately, discussion of this inadequacy and options for improvement are taking place. Since their inception, both the EITC and CTC have enjoyed bipartisan support. Congress should continue to hold up and improve these proven anti-poverty provisions, expanding their impact to benefit hard working American families who continue to struggle to make ends meet. 

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