Federal Income Tax Cuts and Low-Income Families

This report identifies overall tax burdens faced by low income families, explaining how those burdens would change if certain types of federal income tax cuts were enacted. Using detailed household-level data on incomes and taxes, the report shows how federal income and payroll taxes differ for low income families and how these families benefit from certain features of the income tax, such as the Earned Income Tax Credit (EITC). The report examines five tax cut options that are representative of recent proposals, comparing the benefits for low income families with those for higher income taxpayers. They are: an across-the-board reduction in marginal tax rates; an increase in standard deductions and in the income range for the lowest tax bracket; an increase in the child tax credit; an expansion of the earned income tax credit; and a new refundable payroll tax credit. The analysis highlights the effect of such tax cuts on average tax rates rather than marginal ones. Overall, options to increase the EITC or to create a new refundable payroll tax credit are the most beneficial to low income working families. The other three options provide very little benefit to low income families. (SM)