Low-Income Working Families

The case for expanding the EITC for workers without qualifying children is compelling, as the current EITC provides little help to this group. We argue that the EITC for these workers should: - provide these workers with a strong incentive to increase work effort;  - provide a significant subsidy to low-earning workers working near a full-time work level; - begin phasing out only after an individual is working at a level at least equivalent to full-time minimum wage work; - apply to both prime-age and younger workers; and - be effectively coordinated with the Making Work Pay Credit.

This paper examines the characteristics and circumstances of families vulnerable to sharp income drops and those most likely to recover financially. More than 13 percent of nonelderly adults in families with children will see their incomes fall by half at some point over the course of a year, and about 40 percent fully recover within a year. Those who lose jobs or have an adult leave the family are more likely to have a substantial drop in income and are less likely to recover. This study uses data from the Survey of Income and Program Participation, which collects data every four months and can provide information on short-term income loss.

Data from the 2007 Survey of Consumer Finances show a disturbing reality. Even prior to the current recession, many families did not have enough assets to see them through a modest spell of unemployment or another financial emergency. In 2007, nearly one in three U.S. families were liquid asset poor. Low-income, young, and nonemployed families are more vulnerable to economic emergencies. For example, two-thirds (68 percent) of bottom income quintile families and 47 percent of second income quintile families are liquid asset poor, while such shortfalls affect only 1 percent of top income quintile families.

To pay for college, many low- and moderate-income students and their families rely on financial aid and savings. But how students and families save—and in whose name—affects both the tax consequences and the impact of savings on financial aid. Not saving in a tax-preferred account can raise the out-of-pocket costs of college by thousands of dollars. Alternately, saving for college can result in tax penalties if families do not use tax-preferred savings for education.

Low-income status in the United States varies significantly by race and ethnicity. Of the more than 13.4 million families with children living on incomes less than 200 percent of the federal poverty level, 30 percent are Hispanic, 22 percent are black or African American, and 6 percent are other nonwhites. This fact sheet provides statistics on racial and ethnic differences in family structure, work effort, nativity or immigration status, earnings, and education.