The Dual Benefits Of Tax Credits: Taxpayer Income Generation And Economy Stimulus

Abstract

Two important provisions of the Internal Revenue Code were the creation of the Earned Income Tax Credit and Child Tax Credit. Each of these credits were designed to reduce the amount of tax owed, thereby offsetting some of the increases in living expenses and federal income tax. For many this results in a smaller a tax liability. For others with little or no tax liabilities, the credit can result in a significantly increased refund. Many organizations such as the Volunteer Income Tax Income (VITA) Program, AARP and other similar organizations, cater to assisting these individuals. This is primarily due to the benefits that come from these credits which not only affect these individuals and their families but also the local economies. Larger refunds result in greater sustainability of taxpayer economic stability as well as an ongoing stimulation to the local economy. The purpose of this presentation is to describe the results of a study conducted involving the examination of each of these credits in relation to the taxpayer’s Adjusted Gross Income (AGI). The goal of this study was to demonstrate the importance of these credits as to how they benefit the lower income taxpayers. The study examined various taxpayers who qualified for the credits over the course of the past three years. The results demonstrated that roughly 20% to 25% of these taxpayers’ annual income is attributed to the assistance provided through these credits. Therefore, the need for the continuance of these credits is not only crucial for the welfare of the lower taxpayers but for stimulating the economy as well.