The ‘Nonurban’ Tax-Credit Program

A popular tax-break that helps low-income families is at the heart of the disagreement between Congress and the president. A Center for Rural Affairs study confirms that taxpayers in rural areas and small cities are more likely to benefit from the program.


report from the Center for Rural Affairs in Lyons, Nebraska.

The credit has become part of a disagreement between Congress and President Obama. Congress is currently working on making permanent some temporary tax breaks for businesses and families. President Obama has said he will veto the measures unless they also permanently extend provisions for the Earned Income Tax Credit.

EITC was created in 1975 and lowers the federal tax burden on low-income families. In the past it has been touted by both Republicans and Democrats for rewarding work, rather than providing welfare payments. The program was expanded in the administrations of both George Bush (1990) and Bill Clinton (1993).

The Center for Rural Affairs looked at Internal Revenue Service data for 2012, the last year for which data was available, the study said.

They found that while only 18.7% of filers in metropolitan areas claimed the Earned Income Tax Credit, 21.4% of rural filers claimed the credit. In “micropolitan” counties (counties that have cities of between 10,000 and 50,000), the rate was also higher, at 21.6%.

“The nation’s smallest population areas have the largest estimated (percentage) of households claiming the EITC on their tax returns,” the study says.

Jon Bailey, rural policy director of the Center for Rural Affairs, said the gap between urban and rural use of the tax credit is likely to grow in the future, “because the gap between rural areas and urban areas has been growing.

“If that trend continues, I would suspect more people are going to need to use the Earned Income Tax Credit,” Bailey told Colorado News Connection. “It's going to be even more important.”

In 2013, working families that have children and annual incomes below $37,870 to $51,567 (depending on the number of children in the household) qualify for the credit. Taxpayers without children must earn less than $14,340 ($19,680 for married couples) to qualify, according to the Center for Rural Affairs study.

The states with the highest percentage of rural and micropolitan tax filers who claimed the credit tended to be Southern in 2012, the report found.

Among rural tax filers, the top five states with the largest rates of federal tax returns claiming EITC were the following:

1.     Mississippi, 37.5%
2.     Georgia, 32.7%
3.     Florida, 29.3%
4.     South Carolina, 28.8%
5.     Louisiana, 28.8%

Among micropolitan filers, all but one of the top five EITC-claiming states were Southern:

1.     Mississippi, 34.0%
2.     Arizona, 32.2%
3.     Georgia, 32.1%
4.     Louisiana, 31.0%
5.     Alabama, 29.2%

Only four states with rural populations bucked the trend and had a higher percentage of urban residents claiming the EITC. Those were Michigan, Nevada, New York and Wyoming.

The gapbetween urban and rural claims for the Earned Income Tax Credit largely reflects economic differences. Rural areas have lower per capita incomes, lower earnings and higher poverty rates, the Center for Rural Affairs reports.

“This daily life of rural economic conditions results in a large number of working, low-income households – most with children – that rely on an array of income-support programs like the EITC to bolster their well-being,” the report says.

“Because of these conditions the EITC has become a ‘rural program,’ or a least a nonurban program. The stereotype of the EITC as an urban, minority program is contrary to recent data. Because of the number of rural workers qualifying for and claiming the EITC, any changes (in the program) are likely to disproportionately affect rural families and rural communities, both positively and negatively.” 

[source]Source: Center for Rural Affairs, based on IRS data