The Earned Income Tax Credit and Rural America

Jon M. Bailey
Director, Rural Public Policy Program, Center for Rural Affairs
J.D., Creighton University School of Law, 1983

The latest report from the Center for Rural Affairs Rural Family Economic Security project focuses on the Earned Income Tax Credit and rural America. The Earned Income Tax Credit (EITC) is a credit against federal personal income taxes for working people who have low to moderate income, particularly those with children. It has been promoted as one of the most effective anti-poverty public policy initiatives in the United States.

Our report analyzed 2012 federal personal income tax data for every county in the nation. We found:
• Over one in five federal income tax returns from rural county residents, 21.4 percent, claimed the EITC.
• About the same number of federal income tax returns from micropolitan county residents, 21.6 percent, claimed the EITC (micropolitan counties are those with small cities 10,000 to 49,999).
• More people from rural counties claimed the EITC on their federal tax returns than those from metropolitan counties. The same was true of micropolitan counties.
• For rural and micropolitan areas combined – small cities, small towns and rural areas – 21.5 percent of all individual tax returns claimed an EITC, nearly 3 percentage points greater than metropolitan areas, and over 2 percentage points greater than the nation as a whole.

In general we found that the EITC is an example of a social safety net, anti-poverty effort, the usage of which varies by place of residence. The chart below outlines the data of EITC usage by place of residence.

Place of Residence Total Individual Federal Income Tax Returns (2012) Total Individual Federal Returns Claiming EITC (2012) Pct. of all  Individual Federal Returns Claiming EITC (2012)
United States 144,276,600 24,745,200 19.2%
Metropolitan 122,107,900 22,976,820 18.7%
Micropolitan   11,630,220   2,513,310 21.6%
Rural   10,535,400   2,255,610 21.4%

Rural micropolitan county usage of EITC was highest in the South, and lowest in the Midwest and Great Plains (though still generally larger than in Midwest and Great Plains metropolitan areas). Only Michigan, Nevada, New York and Wyoming are states with micropolitan and rural areas that also have metropolitan areas with the highest rates of EITC returns.

In Nebraska, 16 percent of all 2012 federal tax returns claimed the EITC. Usage was highest in micropolitan (small city) counties with more than 17 percent of returns claiming the EITC. Rural usage was slightly higher than tax returns from metropolitan counties (15.8 percent compared to 15.6 percent).

The EITC has been touted as one of the nation’s most effective anti-poverty policy efforts. The Census Bureau estimates that the 2012 poverty rate would have been 3 percentage points higher without the EITC. In 2010, the Census Bureau stated that the EITC kept 5.4 million people, including 3 million children, out of poverty. Studies have also found the EITC to have positive effects relating to promoting increased work hours for single parents and helping to reduce income inequality.

The EITC has become a major source of income support for low-income rural taxpayers, particularly in the South. Greater non-metropolitan area usage of the EITC follows general economic trends in the nation.
• concentration of poverty in many rural locations across the nation
• a rural (non-metropolitan counties) per capita income that is 78 percent of urban (metropolitan counties) per capita income (2012)
• a rural earnings per job that is 71 percent of urban earnings per job (2012)
• a rural poverty rate that is nearly 19 percent higher than the urban poverty rate (2012)

Because of these economic conditions the EITC has become a “rural program,” or at least a nonurban program. The EITC is important to rural people and their well-being. It is also important to the economies of rural communities. The positive effects the EITC has for low-income workers – poverty alleviation, increased work hours, reduction of income inequality, and progressive distribution, for example – are necessities in rural and small city areas across the nation.

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