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State EITC More Beneficial to Low-Income Families
According to a report from Arkansas Advocates for Children and Families
1/24/07 - Click here to view the report

LITTLE ROCK-Today, Arkansas Advocates for Children and Families (AACF) released a report comparing the potential benefit of a proposed grocery tax cut to that of establishing a state earned income tax credit or EITC at two different levels. The results were clear.

"This report shows that both options would be good for low-income families and improve overall tax fairness," said Rich Huddleston, Executive Director of Arkansas Advocates for Children and Families. "However, a state EITC would be more effective because it targets the benefits to low-income families and less likely to cause a revenue shortfall in the future."

The report shows that as of 2007, Arkansas has the highest income tax levied on two parent families of four at the poverty level. Arkansas was ranked 3rd behind Alabama and Hawaii, but both states have now reduced income taxes on low-income families.

A state EITC is one way of directly affecting the income of low-income families. The EITC is limited to working families earning less than $40,000 per year. If a family qualifies for the EITC, they would receive a refund if their credit is larger than the taxes they owe.

"When you compare the EITC and the grocery tax cut, the results are dramatic," said Nona French, Research and Fiscal Policy Director at AACF and author of the report. "With a 24% EITC, the bottom 20% of taxpayers would receive a tax cut of $102, compared to only $40 for the same group under a 3% grocery tax cut. A 10% EITC would provide about the same benefit as a grocery tax cut, but would only cost the state $54 million."

The report also shows that while low-income taxpayers would benefit from a 3% grocery tax cut, a disproportionate share of the tax benefits would go to upper-income taxpayers. Under the grocery tax cut, only 22% of the total tax cut would go to the poorest 40% of taxpayers, with 30% going to those making more than $130,000 per year. Under an EITC, low-income taxpayers would receive 100% of the benefits.

"Ultimately, we're glad that the debate isn't whether we should provide low-income tax relief, but instead how we should do it," said Huddleston. "We applaud the Governor and legislative leaders for their commitment to low-income tax relief this session, regardless of which option they choose."

Arkansas Advocates for Children and Families is a statewide, non-profit child advocacy organization established in 1977. Our mission is to ensure that all children and their families have the resources and opportunities to lead healthy and productive lives and to realize their full potential.

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