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Examining the Federal EITC’s Impact on Poverty

1040 tax form

The federal Earned Income Tax Credit (EITC) plays an important role in keeping Californians out of poverty. The credit supplements earnings for low-income workers at tax time, providing $2,400 on average to qualified tax filers.

Without the EITC, we estimate an additional 814,000 Californians would live in poverty, according to the latest data from the California Poverty Measure (CPM), an ongoing collaboration between PPIC and the Stanford Center on Poverty and Inequality. This reduction in poverty makes the EITC nearly comparable to CalFresh (formerly known as food stamps), the safety net program that keeps the most Californians out of poverty. Our estimates reflect data from 2013 to 2015 and do not include the state EITC, which was introduced in 2015 and expanded in 2017. The state EITC lowers poverty by very little because the largest credits go to workers with very low earnings, whose families mostly live well below the poverty line.

The role that the EITC plays varies widely across regions. Statewide, the poverty rate would be 2.2 percentage points higher without the EITC (22.6% instead of 20.4%). But in Lake and Mendocino Counties (combined), the poverty rate without the EITC would be 4.1 percentage points higher than it is currently, reaching 26.8%. Poverty in Marin County, on the other hand, would increase only 0.2 points, to 16.5%. Such differences could be due to several factors—for example, the share of eligible families who take advantage of the credit and the local availability of jobs.

PPIC recently released data showing poverty rates, poverty thresholds, and the effects of safety net programs not only by county, but also by state assembly and senate district and by US congressional district. These data provide an opportunity to dig more deeply into the varying roles of safety net programs across the state.

The EITC, for example, has the largest effect in some of the highest-poverty congressional districts, including District 40 (Rep. Roybal-Allard) and District 44 (Rep. Barragán). But in some relatively high-poverty districts it plays a smaller role (District 46, Rep. Correa). The data we provide can be a starting point for investigating—and potentially remedying—incomplete access to the EITC.

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