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tax topics

2010 Budget Tax Proposal

Permanently Expand the Earned Income Tax Credit

The economic stimulus act (“American Recovery and Reinvestment Act of 2009”) increased the earned income tax credit rate for working families with three or more children from 40 percent to 45 percent, thus raising the maximum credit for families with three or more children from $5,028 to $5,657 in 2009. The act also increased the phaseout income levels for all married couples filing a joint tax return (regardless of the number of children) to $5,000 above the thresholds for single filers. The president proposes to make both changes permanent and to index for inflation the $5,000 higher phaseout threshold for married couples filing jointly.

The higher credit rate for larger families could induce them to work more although research suggests any impact would be small. Lengthening the phaseout range would change which families face higher marginal tax rates because of the phaseout but have only small effects on overall work effort. The main effect of the proposal would be to increase after-tax incomes of affected families.

Additional Resources
Tax Policy Briefing Book: Taxation and the Family: What is the Earned Income Tax Credit?
Stimulus Act Report Card: Increase in Earned Income Tax Credit
Description of Revenue Provisions Contained in the President’s Fiscal Year 2010 Budget Proposal; Part One: Individual Income Tax and Estate and Gift Tax Provisions (JCS-2-09), Joint Committee on Taxation, September 2009, pp 78-81