Tax Expenditures

The Earned Income Tax Credit, or “EITC,” rewards work and reduces poverty by targeting tax relief to low-income families with children. The EITC has become one of the more effective anti-poverty programs in the United States. The reason the federal EITC is so effective is because it is designed as a “refundable” tax credit. When a tax credit is “refundable,” the taxpayer who qualifies to receive it gets the full dollar value of the credit, even if that dollar value exceeds the income tax liability said taxpayer owes. The EITC effectively boosts the earnings of workers who qualify to receive it, thereby increasing their purchasing power and alleviating poverty. The Child Tax Credit (“CTC”) initially provided qualified taxpayers with a $400 per child nonrefundable credit and was intended to provide tax relief to middle-income families. In 2001, the CTC was made refundable, on a limited basis, with a maximum refundable benefit of $600. Its refundability feature also makes the CTC effective at making tax policy fairer, because like the EITC, the CTC functions to offset taxes other than income taxes—like sales, excise and property taxes—which place a disproportionate burden on lower income earners. Illinois currently does not have a CTC at the state level. In addition to alleviating poverty and stimulating the economy, the refundability feature of the EITC also creates a very effective, as well as administratively facile way to make tax burden fairer.