Diane Sullivan has bounced between more and less extreme bouts of poverty all her adult life, even though she’s worked since she was 14 years old. She has six children, and while two are no longer in her home, there were times when she was trying to keep them all warm and fed while earning as little as $25,000 a year; at most, she’s earned $39,000 a year.
But she’s had a constant lifeline: the Earned Income Tax Credit (EITC).
When working parents who make less than $55,000 file their taxes, they can expect a credit back that averages a little more than $3,000 every year. Very poor working people without children can also claim a much smaller credit of $295. In 2016, nearly 26 million households received the money, and it lifted 5.8 million people out of poverty. It’s been linked to better health and educational outcomes for kids and their parents.
When Sullivan became a parent for the first time at the age of 18, she got the credit back when she filed her taxes. She’s now 45 and has received it nearly every year since.
“It has literally fed my family” when wages and food stamps didn’t stretch far enough, Sullivan recalled. “I’ve been able to catch up on rent. It’s kept the lights and the heat on.”
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Sullivan lives in Medford, Massachusetts, a couple miles north of Boston, and utility costs can skyrocket in the harsh winters even though she carefully keeps dials turned as low as possible. While the electric company can’t cut her off during the worst of it, as soon as that moratorium lifts she’s often been plunged deep into debt — sometimes hundreds of dollars, even during a mild season.
The financial need among EITC recipients is often urgent: Recipients are more likely to file early in order to get the money as quickly as possible, often at the end of January or early February. And like Sullivan, most use the money to pay down bills and debt or to cover their basic needs; in 2015, 80 percent reported using the money to pay rent, mortgages, utility bills, or credit card debt.
“When I receive the EITC credit … I can pay the bill and get caught up, or at least be able to use that to negotiate with a down payment plan,” she said. “It creates such a relief to know that I can rest my head at night knowing that when I wake up tomorrow there’s not somebody creeping outside my door looking for my electric meter to cut it off.”
“Even at times when I haven’t been in crisis, I’ve been able to use my EITC to supplement my income over the next several months,” she added. It’s during those times that the credit has allowed her to send her children on field trips or participate in sports programs. “It can really enhance the quality of life.” One year, after going without a car for a decade, she spent $2,000 to buy one that allowed her to drive to the grocery store, rather than walking home holding groceries with freezing fingers.
But as powerful as the EITC is, there are plenty of people who receive barely any money from it or miss out entirely. In fact, a childless person living right at the poverty line who gets the credit will still owe federal taxes, pushing him deeper into poverty.
The EITC is also tied directly to work; it doesn’t start phasing in until a family earns its first dollar. That means anyone who is destitute enough to be getting by without any official pay — either earning under the table or not at all — can’t qualify. The share of people who survive with no job and no government cash assistance has been since the mid-90s, reaching one in five single mothers by 2008.
Some politicians want to fix these problems and go even further. Last week, Sens. Sherrod Brown (D-OH), Michael Bennet (D-CO), Ron Wyden (D-OR), and Richard Durbin (D-IL), introduced legislation to expand the EITC for parents and significantly boost it for the childless — increasing the maximum amount a childless worker could get from $529 to over $2,000. It also allows recipients to access up to $500 ahead of tax time, which would hopefully provide families relief throughout the year, not just in one lump at tax time, so they don’t have to turn to payday lenders or go into debt when emergencies arise. The bill has garnered support from nearly every Democrat in the Senate.
In 2017, Brown and then-freshman Rep. Ro Khanna (D-CA) put forward a plan that would have expanded the EITC even more for a poor family with two children, increasing it from the current maximum of about $5,700 to more than $10,000, while childless workers would see their credit grow six-fold. The two lawmakers, along with Rep. Bonnie Watson Coleman (D-NJ), resurfaced the idea in February and extended it to students and people caring for young children, aging parents, and other relatives — none of whom are currently eligible.
The EITC is “the most effective tool we have to put more money in the pockets of ordinary Americans,” Brown, Khanna, and Watson Coleman wrote in an op-ed in March. “We’ve seen a lot of ideas floated to make our economy fairer and fight income inequality. Expanding the EITC…needs to be at the center of those conversations.”
Diane Sullivan is luckier than some: Beyond the federal EITC credit she can expect every April, she can also count on a supplemental state version that adds another 30 percent of its worth because she lives in Massachusetts. But 19 states don’t have such a program. In addition to a federal expansion, the rest could start their own and ensure that their credits are refundable so that families can get the money whether or not they owe taxes.
“We should acknowledge that theses tax credits are a critical lifeline for families,” Sullivan said.