Don't Mess With Taxes

Fifty years ago today, President Lyndon B. Johnson delivered his war on poverty speech. It was LBJ's first State of the Union Address on Jan. 8, 1964, just seven weeks after he moved to the Oval Office following John F. Kennedy's assassination.

"This administration today, here and now, declares unconditional war on poverty in America," the new president announced to the joint session of Congress and all of America in his Texas drawl. And for LBJ, the war was personal.

"His father failed. He once had been a very respected state legislator and businessman, and he totally failed. And as a result, for the rest of his boyhood, Lyndon lived in a home that they were literally afraid every month that the bank might take away," LBJ biographer Robert Caro told NPR. "There was often no food in the house, and neighbors had to bring covered dishes with food. In this little town, to be that poor, there were constant moments of humiliation for him, and insecurity. It was a terrible boyhood."

So the determined Texan threw his all into enacting policies and legislation that helped millions of Americans achieve more economic stability and success.

Reducing poverty, somewhat: It has worked, to a degree.

The overall poverty rate in the United States fell from 26 percent in 1967 to 19 percent in 2012, according to Columbia University research.

But 46 million people, 16 million of whom were children, were living in poverty in 2012, according to U.S. Census Bureau data.

As LBJ had hoped, social safety net programs were key to keeping more folks from poverty. Programs for the poorer among us kept 41 million people, including 9 million children, out of poverty in 2012, according to the College of Public Policy.

Help through taxes: But recession, job losses and lower-paying jobs in today's economy mean more people are need of safety net programs.

One of programs is delivered via the tax system.

The Earned Income Tax Credit, referred to as the EITC or sometimes the EIC, is a tax benefit for the working poor. The EITC is one of the first, and most expansive, efforts to translate public policy into tax law.

The EITC was created in 1975 as a way for lower-paid workers to offset the Social Security taxes that take a relatively big bite out of their smaller paychecks. Since it's a tax credit, it offsets a taxpayer's IRS bill dollar for dollar.

Plus, it's refundable, meaning an eligible individual could get the credit back as a refund.

Praise and damnation: Many on and off Capitol Hill have lauded the EITC, including GOP icon Ronald Reagan called the EITC "the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress."

Granted, the EITC does have its critics and its problems.

It's complicated, meaning that it's easy for taxpayers to make honest mistakes. Many of the folks eligible for the EITC don't make enough money to get paid professional tax help.

And because it's a refundable credit, unscrupulous tax preparers and taxpayers too often file fraudulent EITC claims. The Internal Revenue Service is continuing to crack down on false EITC filings.

But when the EITC works as designed, it is a big help for lower-paid individuals.

Claiming the EITC: To qualify for the EITC you must work. Your earnings level determines whether you can file for the credit.

NOTE: You can find the EITC's inflation adjusted amounts for the 2017 tax year, with 2016's amounts for comparison, in my Oct. 28, 2016 post. 

For the 2013 tax year, your adjusted gross income (AGI) must be less than:

• $46,227 ($51,567 for married filing jointly) if you have three or more qualifying children,
• $43,038 ($48,378 for married filing jointly) if you have two qualifying children,
• $37,870 ($43,210 for married filing jointly) if you have one qualifying child, or
• $14,340 ($19,680 for married filing jointly) if you do not have a qualifying child.

You also can earn some investment income, but not too much. The maximum amount of investment income you can have and still get the EITC is $3,300 for the 2013 tax year.

If you meet those earnings (and unearned income) parameters, the maximum EITC amount for 2013 filings is:

• $6,044 with three or more qualifying children,
• $5,372 with two qualifying children,
• $3,250 with one qualifying child or
• $487 with no qualifying children.

Those amounts can be a substantial help. So if you qualify, by all means claim the EITC.

And on this day -- and beyond -- remember my fellow Texan whose war on poverty is still being waged.

You also might find these items of interest:

• A refrigerator is not a luxury
• Taxes as a tool of economic equality
• Tax breaks for minimum wage workers