According to this new research, at the end of 2010, the Child Tax Credit improvements that were included in the 2009 American Recovery and Reinvestment Act will expire if Congress does not extend them. If this happens, low-income working families across America will be affected

Mattingly, Marybeth J.

Sherman, Arloc

English

UNH Scholars' Repository

  June 10, 2010 OVER 3 MILLION LOW-INCOME CHILDREN IN RURAL AREAS FACE CUT IN CHILD TAX CREDIT IF RECOVERY ACT IMPROVEMENT EXPIRES By Arloc Sherman and Marybeth J. Mattingly Nearly 3.3 million low-income children with working parents in rural areas will lose important tax benefits if Congress does not extend the Child Tax Credit improvements that the 2009 American Recovery and Reinvestment Act provided for low-income families, as President Obama has proposed.  These nearly 3.3 million low-income children live in rural areas all across America.  More than 10,000 rural children will face reductions in the tax credit in each of the 44 states for which we have reliable rural data.  In 11 states, more than 100,000 rural children will face a reduction.  Moreover, rural children (i.e., those who live in non-metropolitan areas) will be over 20 percent more likely than children in urban and suburban areas to be affected — because their families are more likely to have modest incomes.  If the tax credit improvement that is in effect for 2009 and 2010 is allowed to expire at the end of this year, a family with two children in which a parent is working at a full-time, minimum wage job will see its child credit fall from $1,725 to $248.   Recovery Act Enabled More Low-Income Working Families to Qualify for Child Tax Credit  The 2009 Recovery Act modified the Child Tax Credit to enable low-income working parents to count more of their wages toward the credit.  Under prior law, a working family’s first $12,550 in wages would not have counted toward the child credit in 2009.  The Recovery Act lowered this wage threshold to $3,000 for 2009 and 2010.   This improvement extended the tax credit to an estimated 2.7 million low-income working families — including over half a million rural working families — who otherwise would not have qualified for it because their wage income is too low.  The improvement also increased the amount 820 First Street, NE, Suite 510 Washington, DC  20002 Ph: 202‐408‐1080 center@cbpp.org www.cbpp.org          73 Main Street, Huddleston Hall Durham, NC 03824 Ph: 603‐862‐2821 Carsey.Institute@unh.edu www.carseyinstitute.unh.edu of the tax credit for many other low-income families who previously received only a partial credit.1  The expansion of the tax credit both rewards these families’ work and encourages greater work effort.  (Note:  The Child Tax Credit begins phasing in slowly once a family’s wages rise above the wage threshold.  For every $100 of earnings above the threshold, the family qualifies for an additional tax credit of $15, until the family reaches the maximum tax credit level of $1,000 per child.  As a result, low-income families with two children whose earnings exceed the wage threshold level receive a partial credit — rather than the full credit of $1,000 per child — unless their earnings surpass the threshold by at least $13,333.  If the wage threshold is set at $3,000, families with two children must earn at least $16,333 to receive the full tax credit.)   President Obama has proposed making this improvement in the tax credit permanent.  If Congress fails to act, the wage threshold to qualify for the credit will jump from $3,000 this year to $12,850 next year.  That means, for example, that a family with two children where a parent is working at a full-time, minimum wage job will see its child credit fall sharply from $1,725 this year to $248 next year.  This reduction also will affect families further up the income scale.  If the wage threshold rises to $12,850, a family with two children will not qualify for a full tax credit until its earnings reach the $26,183 level.   The Urban Institute-Brookings Institution Tax Policy Center estimates that more than 18 million children aged 0-16 whose parents work will lose all or part of their child credit if Congress lets the improvement expire.2  In addition, the Center on Budget and Policy Priorities estimates that 600,000 children will be pushed into poverty because the loss of part or all of the credit will drop their families’ incomes below the poverty line, and an additional 4 million children who already are poor will become poorer. 3   Reduction in Credit Will Have Sizeable Effects on Rural Children in Most States Our analysis finds that nearly 3.3 million rural children in low-income working families, and 14.8 million children in metropolitan areas, will see reductions in their Child Tax Credit if Congress does not extend the current rules (see Table 1).  Reliable data on rural children are available for 44 of the 50 states.4  More than 10,000 rural children will be affected in each of these states.  The states with the largest numbers of rural children whose families will face a reduced tax credit include:  Texas (258,000 such children), North Carolina (199,000 children), Mississippi (154,000), and Georgia (139,000).  The other states with losses for                                                             1 Marybeth Mattingly, “Child Tax Credit Expansion Increases Number of Families Eligible for a Refund,” Issue Brief No. 4 (Spring 2009), Carsey Institute, University of New Hampshire.  2 See www.taxpolicycenter.org/numbers/Content/Excel/T10-0009.xls.  3 Arloc Sherman, Avi Feller, and Chuck Marr, “Failure to Extend Improvements in Child Tax Credit Would Harm Millions of Low-Income Working Families,” Center on Budget and Policy Priorities, February 16, 2010, www.cbpp.org/files/2-16-10tax2.pdf.  That analysis also contains state-by-state estimates of the number of children who will lose some or all of their child credit.  Those state estimates differ from the sum of the metro and nonmetro numbers in this analysis due to the use of different Census survey data and methods. 4 New Jersey and Rhode Island (along with the District of Columbia) contain no nonmetropolitan areas and Idaho, Maryland, Massachusetts, and Utah have limited rural data, as discussed below. 100,000 or more children are Kentucky, Michigan, Missouri, Ohio, Oklahoma, Pennsylvania, and Tennessee. States where rural children make up the largest percentage of all affected children include:  Montana (where 73 percent of the children who will be affected, or 40,000 children, are rural children), Vermont (where 68 percent, or 15,000, are rural), Wyoming (66 percent, or 17,000, are rural), and North Dakota (63 percent, or 17,000, are rural).   Rural Children at Greater Risk  Rural children will be roughly 20 percent more likely than those in metropolitan areas to face reductions in their child credit if Congress fails to extend the Recovery Act improvement.  Nationwide, rural America includes 15 percent of all children — but 18 percent of the children whose Child Tax Child credit would be reduced.  (See Table 2 for state data.)  This disparity reflects the generally lower earnings of rural workers and their families.  In metropolitan areas, 49 percent of earners earn less than $30,000 a year.  But in nonmetropolitan areas, 60 percent do.  Low earnings are significantly more common in rural than metropolitan areas in 45 of the 48 states for which these data are available.  (See Table 3.)    Appendix:  Data and Methods  Our estimates start with the Tax Policy Center’s projection that approximately 18.1 million children nationwide will lose all or part of their Child Tax Credit in 2011 if the Recovery Act provisions expire.  We allocate this figure by state, and within states by metropolitan status, using data from the Census Bureau’s 2008 American Community Survey.  Specifically, we use the Census data to create a simplified model of each family’s tax credits and use these simplified estimates to allocate the Tax Policy Center’s more precise national total.5  For example, if our model shows that the non-metropolitan portion of a state contains 1 percent of all U.S. children facing a Child Tax Credit reduction, we assign that area 1 percent of the Tax Policy Center’s 18.1 million total.  All estimates were weighted to account for sampling.   Rural areas are defined as all areas that were not in a metropolitan statistical area in 2008.  Two states (New Jersey and Rhode Island) and the District of Columbia are entirely metropolitan and include no rural areas.                                                                5 Steps in creating our simplified tax model include constructing tax filing units, calculating their earnings and approximate adjusted gross income, and using federal tax rules to calculate taxable income, income tax liability before taxes, and the Child Tax Credit.  All income figures and tax parameters are in 2011 inflation-adjusted dollars.  The model excludes children under age 17 who are married or heads of household.  In total, our model indentifies 13.0 million children who would lose some or all of the child credit if current rules are allowed to expire.    Our simplified model assumes that all families claim the standard deduction.  When we use a more complex tax model that includes estimates of itemized deductions such as mortgage interest, property taxes, and state income taxes, our results change very little from those shown in Table 1. Because public data files from the American Community Survey do not identify metropolitan status directly, we used geographic identifiers provided by the Census Bureau (called Public Use Microdata Areas).  Most of these Census areas fall entirely within or entirely outside metropolitan boundaries and thus provide a straightforward indicator of rural status.    In cases where part of the Census area is in a rural area and part in a metropolitan area, we assign the percentage of the area’s CTC-eligible children to metropolitan status based on the percentage of the area’s total population that is metropolitan.6  In four states, the overlap between Census areas and rural areas is relatively weak and we are less confident that this method will give us an accurate result.7  In these states (Idaho, Massachusetts, Maryland, and Utah) we do not show results, although we include data from these states in the national totals.  Available data were not sufficient to distinguish urban from suburban parts of metropolitan areas.                                                               6 Files available from the Missouri Census Data Center show what share of each Census area’s total population lives in a metropolitan statistical area.  We designate that same fraction of the area’s children “metropolitan” and the remaining fraction “rural.”  This rural/metro split is applied equally to every child in the data file who lives in that area.  (For example, in conventional analyses of Census data, a typical child whose parents filled out the American Community Survey might represent a total of 100 “weighted” children in his or her community.  If the child is from a Census area that we know to be 80 percent rural, we consider that child to represent 80 rural children and 20 metropolitan children.) 7 We do not show results for states where the average resident who is assigned “rural” status by our method is drawn from a Census area where the actual population is less than two-thirds rural (i.e., at least one-third metropolitan).  In Massachusetts, for example, the average resident assigned “rural” status lives in an area that is only 25 percent rural.  Comparable percentages are somewhat higher in Maryland (50 percent), Utah (53 percent), and Idaho (66 percent) but still below our cut-off of two-thirds.  For the nation as whole, by our method, the average resident assigned “rural” status is from an area that is 86 percent rural.     Table 1: Number of Children (0-16) Who Will Receive A Smaller Child Tax Credit,  Or No Child Tax Credit, If the Wage Threshold Rises from $3,000 to $12,850 in 2011  Estimated Number of Children (in thousands)  Metro Nonmetro United States 14,802 3,251 Alabama 206 96 Alaska 19 17 Arizona 455 39 Arkansas 129 96 California 2,396 44 Colorado 246 33 Connecticut 118 11 Delaware 36 13 District of Columbia 18 0 Florida 988 70 Georgia 536 139 Hawaii 29 13 Idaho 72 — Illinois 627 98 Indiana 293 88 Iowa 98 70 Kansas 95 58 Kentucky 143 121 Louisiana 219 91 Maine 35 25 Maryland 184 — Massachusetts 212 — Michigan 477 106 Minnesota 140 73 Mississippi 97 154 Missouri 229 125 Montana 15 40 Nebraska 63 40 Nevada 151 13 New Hampshire 17 17 New Jersey 339 0 New Mexico 103 73 New York 935 77 North Carolina 410 199 North Dakota — 17 Ohio 476 130 Oklahoma 170 104 Oregon 172 53 Pennsylvania 448 104 Rhode Island 38 0 South Carolina 200 68 South Dakota 24 25 Tennessee 291 119 Texas 1,873 258 Utah 147 — Vermont — 15 Virginia 299 63 Washington 266 53 West Virginia 56 52 Wisconsin 190 67 Wyoming — 17   Reliable data not available.  (See footnote 7.) Source: Tax Policy Center national estimates allocated by state and place using 2008 American Community Survey data.     Table 2: Percent Rural, For All Children and Those Who Will Lose Part or All of the Child Tax Credit if Threshold Increases from $3,000 to $12,850 in 2011        Percent Living in a Non Metropolitan Area  All Children Children Facing Loss/Reduction of CTC United States 15% 18% Alabama 28% 32% Alaska 32% 46% Arizona 7% 8% Arkansas 38% 43% California 2% 2% Colorado 13% 12% Connecticut 8% 8% Delaware 19% 27% District of Columbia 0% 0% Florida 5% 7% Georgia 17% 21% Hawaii 30% 34% Idaho 34% —  Illinois 11% 13% Indiana 21% 23% Iowa 42% 42% Kansas 34% 38% Kentucky 40% 45% Louisiana 26% 29% Maine 40% 42% Maryland 5% —  Massachusetts 0% — Michigan 17% 18% Minnesota 25% 34% Mississippi 55% 61% Missouri 25% 35% Montana 65% 73% Nebraska 39% 39% Nevada 9% 8% New Hampshire 34% 50% New Jersey 0% 0% New Mexico 34% 41% New York 7% 8% North Carolina 28% 33% North Dakota 51% 63% Ohio 19% 21% Oklahoma 34% 38% Oregon 21% 24% Pennsylvania 15% 19% Rhode Island 0% 0% South Carolina 23% 26% South Dakota 52% 52% Tennessee 25% 29% Texas 11% 12% Utah 10% — Vermont 64% 68% Virginia 12% 17% Washington 11% 16% West Virginia 44% 48% Wisconsin 25% 26% Wyoming 69% 66%  Reliable data not available.  (See footnote 7.) Note:  Children in column 1 are children under 18 related to the head of household; data are from published Census tables from the 2008 American Community Survey.  Children in column 2 are estimated children under 17 who would lose all or part of the CTC under the higher refundability threshold, based on analysis of the 2008 American Community Survey public use file.   Table 3: Percent of Earners Earning Less Than $30,000 a Year, 2006-2008  In Metro Areas In Nonmetro Areas United States 49% 60%* Alabama 54% 61%* Alaska 45% 53%* Arizona 50% 62%* Arkansas 57% 66%* California 48% 57%* Colorado 47% 55%* Connecticut 41% 44%* Delaware 45% 52%* District of Columbia 39% —  Florida 52% 62%* Georgia 49% 62%* Hawaii 44% 49%* Idaho 55% 63%* Illinois 47% 59%* Indiana 52% 56%* Iowa 52% 58%* Kansas 49% 62%* Kentucky 52% 62%* Louisiana 54% 60%* Maine 53% 60%* Maryland 40% 46%* Massachusetts 43% 47% .  Michigan 50% 60%* Minnesota 43% 58%* Mississippi 55% 64%* Missouri 51% 65%* Montana 59% 62%* Nebraska 51% 61%* Nevada 47% 51%* New Hampshire 43% 50%* New Jersey 41% —  New Mexico 56% 62%* New York 46% 58%* North Carolina 52% 60%* North Dakota 57% 58% . Ohio 51% 58%* Oklahoma 55% 63%* Oregon 52% 60%* Pennsylvania 49% 58%* Rhode Island 48% —  South Carolina 54% 61%* South Dakota 55% 62%* Tennessee 53% 63%* Texas 53% 62%* Utah 55% 60%* Vermont 50% 56%* Virginia 44% 59%* Washington 46% 60%* West Virginia 56% 62%* Wisconsin 49% 56%* Wyoming 53% 53% . * Metro-nonmetro difference is statistically significant at the 90 percent confidence level. —  All portions of state are metropolitan. Source: 2006-2008 American Community Survey Table B20001.  Additional calculations by CBPP. 

Over 3 million low-income children in rural areas face cut in child tax credit if recovery act improvement expires

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Over 3 million low-income children in rural areas face cut in child tax credit if recovery act improvement expires

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