Tax Credits and Rural Incomes

[imgbelt img=Harlancross.jpg]An increasing amount of the money the nation spends in efforts to raise the income of poor Americans comes in the form of tax credits.



Since 1980, the total cost of tax expenditures has increased by over 250 percent and currently exceeds $1.1 trillion.

A primary reason for this growth is that there is greater bipartisan support to enact tax expenditures than to fund or increase direct spending programs, especially since tax expenditures are often viewed as tax cuts. These expenditures have significantly reduced the share of taxpayers who owe federal income tax.

As a result, in 2009, only about half of rural taxpayers owed any federal income tax. This is slightly below the overall rate of 53 percent of all taxpayers and reflects the lower income levels of rural taxpayers.

In 2008, 22 percent of rural taxpayers received a cash payment from one or more of the refundable tax credits. The average amount was $2,428. Thus, an effect of the increased use of the tax code for social policy goals has been an increase in the number of rural taxpayers who owe no federal income tax and who receive a cash payment as a result of the refundable tax credits.

Rural America Receives a Relatively Larger Share of Benefits 

Rural households have historically had lower incomes and a higher poverty rate than urban households.

In 2008, rural taxpayers reported an average adjusted gross income (AGI) of $43,616, compared with $60,841 for urban taxpayers. A larger share of rural taxpayers had an AGI below $50,000.

While there is little difference between the share of urban and rural taxpayers with incomes between $50,000 and $100,000, the share of urban taxpayers with incomes in excess of $100,000 is more than double that for rural taxpayers. This distribution of income is a primary reason that a larger share of rural taxpayers benefit from the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).