A Missouri Earned Income Tax Credit: Helping to Pave the Way to the Middle Class

EITC Boosts Families, Strengthens Local Economies

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A prosperous Missouri requires a strong middle class, with the ability for families that work hard to achieve a better future. A state Earned Income Tax Credit (EITC) is one of the best ways Missouri can help all working families – even those in low-paying jobs — have the opportunity to build better lives and economic security.

The federal EITC is a tax credit available only to working people and the size of a worker’s credit is based on their income. For those with very low earnings, the dollar value rises with each additional dollar earned, up to a point, which encourages people to stay working and to work more hours. The federal EITC reduces federal income taxes, payroll taxes for Social Security and Medicare, and excise taxes, and leaves hardworking families with more to make ends meet.

States can do the same thing, providing hardworking families a further boost toward the middle class. Today, 26 states and the District of Columbia have built on the success of the federal EITC by enacting state versions that offer a credit towards state and local taxes for low-wage workers struggling to get by.

A state EITC would provide many benefits to Missouri:

A bottom-up tax cut for working families. A state EITC would reduce state taxes for working men and women that need – and would use – a tax cut most. Families with incomes up to $53,300, depending on family size, qualify for the federal EITC and could be eligible for a Missouri EITC. The largest tax credit would accrue to families with incomes below $37,000, and phase out as incomes rise.

Help Missourians meet basic needs and strive towards the middle class. Twenty percent of Missouri households claimed the federal EITC in 2013.[1] It helped more than 515,000 families pay for basics like child care and car repairs. A state EITC could help further — enabling families to pay for gas to get to work or to take a community college class to advance their job skills.

Boost local economies. A state EITC would put more money in the pockets of people likely to spend it at local businesses to buy groceries or pay for child care or other basics.

Improve the lives of Missouri’s children and Missouri’s future workforce. Children whose families receive the federal EITC have higher test scores, are more likely to go to college, and enjoy greater earnings as adults,[2] establishing a more productive and skilled workforce for Missouri’s future.

A Missouri EITC is a targeted tax credit that encourages work, boosts local economies, and provides a path to the middle class. The Missouri legislature can enact a state EITC in 2016.

More than 515,000 Hardworking Missourians from Across the State Benefit from the EITC

The federal EITC provides a credit towards income, Social Security, Medicare, and excise taxes to boost the wages of working men and women who struggle to make ends meet. The amount of the credit is based on a family’s income, marital status, and number of dependents. The credit phases out for families with incomes of $37,000 to $53,300, depending on family size.

A Missouri credit would be set as a percentage of a working family’s federal credit. It would help to reduce the cost of state and local taxes, including state and local income, sales and property taxes, that low-income households in Missouri pay.

Below are key facts about how the federal EITC helps Missourians and who would be eligible for a state credit:

• Improves the health and long-term economic prospects of more than 1.3 million Missourians, including nearly 600,000 children.[3]
• Lifts nearly 100,000 Missourians out of poverty every year, including more than 50,000 children.[4]
• Keeps parents working, like the estimated 337,000 working moms and 180,000 working dads that benefitted from the EITC in 2012.[5]
• Increases wages for about 40,000 veterans and working families and almost 155,000 families in rural areas.[6]
• Rewards work. The EITC is a strong incentive to work and provides a pathway to the middle class. Missourians who receive the EITC work in a range of professions throughout the state, as shown below. [7]

Share of Missouri EITC population, by industry and occupation, 2014

Communities Across Missouri Benefit from the EITC

A state EITC is a common-sense way to help working Missourians in every corner of our state – rural and urban alike – keep more of what they earn to make ends meet. In fact, in many counties up to one third of taxpayers receives the federal credit (see map).

Statewide, one of every five taxpayers receives the boost in income afforded by the EITC – money they will spend in their local communities.

Missouri legislators can pave the road to the middle class for a half-million families and boost local economies by enacting a state earned income tax credit in 2016.

For county specific data, download the PDF version

ENDNOTES

[1] IRS Data analyzed by the Brookings Institution. Available at http://www.brookings.edu/research/interactives/eitc

[2] “EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children’s Development, Research Finds,” Center on Budget & Policy Priorities. April 3, 2015.

[3] “Characteristics of the EITC-Eligible Population,” Brookings Institution. 2013.

[4] “State Estimates of People and Children Lifted out of Poverty by the EITC and CTC Each Year, 2011-2013,” Brookings Institution analysis of Supplemental Poverty Measure Public Use Data.

[5] Data provided upon request from the Center on Budget and Policy Priorities. More details available in the following two reports, which combine EITC recipients with parents receiving a separate federal tax benefit – the Additional Child Tax Credit – resulting in a higher overall number. “21 Million Mothers Benefit from Tax Credits for Working Families,” CBPP. May 2015. And “13 Million Fathers Benefit from Tax Credits for Working Families,” CBPP. May 2015.

[6] Data provided upon request from the Washington, D.C.-based Center on Budget and Policy Priorities. More details available in the following report, which combines EITC recipients with parents receiving the Additional Child Tax Credit, resulting in a higher number overall. “Pro-Work Tax Credits Help 2 Million Veterans and Military Families,” CBPP. June 2015.

[7] “Characteristics of the EITC-Eligible Population,” Brookings Institution. 2013.