The “State” of Low-Wage Workers: How the EITC Benefits Urban and Rural Communities in the 50 States
Low-income working families live in large cities and rural areas in nearly equal numbers, IRS data show. A study of IRS data on receipt of the Earned Income Tax Credit (EITC) in tax year 2001 reveals that:
- Nationally, families in large cities are the most likely to earn the EITC, followed closely by families in rural areas. Overall, though, suburbs of large metropolitan areas are home to the largest number of low-income working families (6.7 million).
- Families in the rural South are more likely to earn low incomes than those in any other part of the nation. In the Midwest and Northeast, EITC earners are generally concentrated in large cities. In the West, they are dispersed relatively evenly among large cities and suburbs, smaller metros, and rural areas.
- States vary significantly in the concentration of low-income working families in different types of areas. Fourteen states have either high (above 20 percent) or low (below 10 percent) proportions of families earning the EITC statewide. Among the 36 states in which 10 to 20 percent of filers claim the EITC, ten exhibit higher EITC receipt in their large cities, seven have higher EITC receipt in their rural counties, and 19 have very similar proportions of low-income working families in urban and rural areas.
- Between tax years 2000 and 2002, the economic downturn and longer-term employment trends likely contributed to the 8 percent increase in the number of families nationwide claiming the EITC. In addition to fast-growing states like Nevada and Utah, states with the largest increases in EITC earners were concentrated in the Midwest. Some states with significant campaigns to inform eligible filers about the credit experienced above-average growth in EITC claims over this period.
The spatial distribution of EITC earners shows that in a large number of states, supporters of large cities and small rural towns share a common interest in advancing a policy agenda that benefits the working poor. State governments should consider building on the federal EITC through state tax codes; ensuring that more eligible families get the credit for free or pay a reasonable amount to do so; and revisiting policies that may discourage low-income families from saving refund dollars.