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Refundable Credits Have Cut Taxes for Low-Income Households

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Publication Date: August 2008

Publisher(s): Tax Policy Center

Author(s): Roberton Williams

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Economic Well-being; Income and Wealth Distribution; Poverty; General Tax Policy

Type: Report


In 1979, federal taxes claimed 8 percent of the income of households in the lowest quintile of the income distribution.1 Over the following three decades, the average effective tax rate (ETR) ? taxes as a percentage of income ? fell by nearly half to 4.3 percent in 2005. Most of the decline resulted from a sharp drop in the individual income tax, primarily due to expansion of the earned income tax credit and the child tax credit (CTC). Because the EITC is refundable and the CTC is partially refundable, they can reduce a household?s tax liability below zero and generate a net payment.