January 14, 2000

President Clinton Proposes To Expand The Earned Income Tax Credit

Wednesday, President Clin-ton announced, in his Address to the Democratic Leadership Council, A New $21 Billion Plan to Expand the Earned Income Tax Credit — A Key Part of His "New Opportunity Agenda." The President's proposal would expand the Earned Income Tax Credit (EITC) to provide tax relief for 6.4 million hard-pressed working families. The expansion will cost about $21 billion over 10 years. Building on the Successes of the 1993 EITC Expansion. In 1993, the President signed into law the largest EITC expansion ever to provide a tax
cut for 15 million working families while rewarding work and family. Today, the success of the EITC in reducing poverty and encouraging work is clear:

• 4.3 Million People Directly Lifted Out of Poverty by the EITC in 1998 — more than double the number lifted out of poverty in 1993.

• 2.3 Million Children Directly Lifted Out of Poverty by the EITC in 1998. This includes 600,000 African-American children and 600,000 Hispanic children.

• Largest Drop in Poverty and Child Poverty in Over Three Decades. The poverty rate has fallen from 15.1 percent in 1993 to 12.7 percent in 1998 — the lowest since 1979. At the same time, the child poverty rate fell from 22.7 percent to 18.9 percent — the lowest child poverty rate since 1980.

• More Single Moms Are Working Than Ever Before. The percentage of single mothers who work and receive no welfare has risen from 60.9 percent in 1992 to 75.0 percent in 1998.

The President's Proposal Increases the Reward to Work and Family in Four Ways:

• Expand the Maximum Credit for Working Families with Three or More Children By $500. This would provide a tax break for 2.1 million low- and moderate-income working families. This expansion is targeted at the highest concentration of child poverty: in 1998 the poverty rate for children in families with three or more related children was 28.5 percent — more than twice the 11.9 percent poverty rate for children in families with one or two related children.

• Expand the Credit for Married, Two-Earner Couples. This would benefit over 1.3 million married filers. For married, two-earner couples, this provision by itself would provide an average tax break of $250.

• Increase the Reward to Work While Expanding the Credit for Families with Two or More Children. This would provide an additional tax break, and an additional incentive to work, for families with two or more children by lowering the phase-out rate to give more rewards to families
struggling to work their way into the middle class.

• Encouraging Savings through Simplification. Currently, when a working family contributes to a 401(k) they may see their EITC reduced. This proposal encourages savings and simplifies the calculation of earned income for the purposes of the EITC.

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