Earned Income Tax Credit Plays Outsized Role in Rural

An anti-poverty program that puts more of the earnings of low-income Americans into their pockets has a larger impact in rural areas, by many measurements.

Even though counties outside the nation’s metropolitan counties receive only a fraction of the total payments under the federal Earned Income Tax Credit, the anti-poverty program plays an outsized role in rural communities, data show.

In 2013 the Internal Revenue Service paid about $10 billion to tax-filers living in small cities and rural areas.

The map shows the relative economic impact of the Earned Income Tax Credit for most U.S. counties. Counties are shaded according to what percentage of that county’s personal income is from EITC payments to people residing in that county. Darkest counties have the highest percentage of personal income from EITC.
Click on the map for an interactive version.

Tax filers living in metropolitan areas (counties with a city of 50,000 and up and some adjacent counties) received $54.5 billion in tax credits from the program in 2013, shared among 114.3 million tax filers who qualified for the credit.

The Earned Income Tax Credit, or EITC in Washington-speak, is designed to reduce poverty for people who work. The program helps low-income workers who file tax returns get more of their federal taxes back, contributing directly to the family’s bottom line by increasing their tax refund or reducing the amount of taxes they owe.

While the raw number of EITC dollars flowing into metropolitan areas dwarfs the amount that flows into rural areas, as a percentage of the cash that is circulating in the local economy, EITC plays a bigger role, the Daily Yonder found.

The findings are similar to Daily Yonder studies of the economic impact of Social Security and the federal Supplemental Nutrition Assistance Program.

“The tax credit is very important in both metropolitan and nonmetropolitan areas,” said Arloc Sherman, a senior fellow at the Center on Budget Policy and Priorities. “But the idea that EITC has a larger relative effect in parts of the country that are most isolated economically is not surprising.”

We looked at several measurements of the relative impact of EITC in rural areas. And by every yardstick, rural areas were more likely to benefit, sometimes significantly so.

We divided counties in those that are metropolitan (cities and their suburbs), micropolitan (small cities), and noncore (counties that don’t have a city of 10,000 or more and that aren’t inside the economic “orbit” of city.

Then we looked at the percentage of tax filers who received a tax credit under the program, the amount of the EITC credit per return, and the county’s total EITC payments as a percentage of all the personal income in that county.

In every case, the EITC impact expanded as you moved from the city to the countryside.

The charts tell the story.

In metropolitan areas, 19.8% of tax filers received the tax credit. In micropolitan areas (small cities), 22.3% did. And in noncore, or the most rural, counties, 23.4% did (see chart).

EITC Data from Brookings Institution. Compiled by Daily Yonder.
EITC Data from Brookings Institution. Compiled by Daily Yonder.

The same trend occurred in the per-return tax credit filers received. Filers in the most rural counties (noncore) received more per return, on average, than other filers (see chart).

EITC Data from Brookings Institution. Compiled by Daily Yonder.
EITC Data from Brookings Institution. Compiled by Daily Yonder.

And finally, we looked at a county’s combined EITC payments as a percentage of personal income and ranked counties by their “dependency” on EITC. This is a relative measurement of how hard the local economy would be hit if EITC weren’t circulating. In metropolitan counties, a smaller percentage of the money circulating in the economy came from EITC than in small cities or rural areas (see chart).

EITC data from Brookings Institution. Compiled by the Daily Yonder.
EITC data from Brookings Institution. Compiled by the Daily Yonder.

Similar studies, like the one the Center for Rural Affairs conducted last fall, confirm our findings.

We wanted to take a fresh look given the timeliness of the issue. Even though EITC is approved through 2017, there’s an effort to get it on the congressional agenda this year, linking the anti-poverty program to proposed actions that would extend business tax credits.

Share This:


Topics: EconomyKids

News Briefs