Not Extending Tax Credits for Low- and Moderate Income Families Would Be Devastating

Failing to extend the temporary improvements Congress made last year to tax credits that help low- and moderate income people would be devastating to thousands of Washington families.

Below is a summary of the improvements President Obama is proposing to make permanent in his 2011 budget.

Made by Congress as part of last year’s Recovery Act, they provide targeted help to the tens of millions of working families and children who have been hit hardest in these difficult economic times.

Child Tax Credit

The CTC provides support to low- and moderate-income families to cover the added costs of raising children while encouraging parents to work.  The improvements made to the CTC as part of last year’s Recovery Act allowed families to count significantly more of their earnings under $13,000 when calculating their refundable tax credit.

If Congress fails to extend the improvements, families will only be able to count earnings above around $13,000 starting in 2011.  A parent working for the minimum wage and raising two kids in Washington would see her credit cut from $2,000 to less than $650.

Earned Income Tax Credit

The EITC is a federal tax credit for low- and moderate-income working people designed to encourage and reward work as well as offset payroll and income taxes.  Prior to 2009, families with three or more children received the same EITC benefits as those with two children, even though larger families have higher living expenses.

The Recovery Act added a third “tier” to the EITC providing larger benefits to the over 3 million working families with three or more children.  If Congress doesn’t extend this provision, thousands of families with three children in our state will lose some of their EITC benefits.

The Recovery Act also expanded marriage penalty relief in the EITC, reducing the financial penalty that hit some couples by allowing married couples to receive larger benefits.  Nearly 5 million adults and more than 8 million children would lose this benefit if Congress fails to make the improvement permanent.

American Opportunity Tax Credit

The Hope Credit, created in 1997, provided a tax subsidy for up to two years of college tuition costs.  The Recovery Act, renamed it the American Opportunity Tax Credit, was made available to millions of low- and moderate-income students for the first time. It also raised the maximum value from $1,800 to $2,500 and allowed students to claim the credit for four years of education.  Without congressional action, these improvements will expire after 2010 and the credit once again will be inaccessible to the students who need it most.