Federal Tax Policies and Low-Income Rural Households
by Ron Durst
and Tracey Farrigan
Economic Information Bulletin No. (EIB-76) 27 pp, May 2011
What Is the Issue?
Tax credits provided to low-and moderate-income households have
grown over the last several decades and now provide a significant
boost to the after-tax incomes of taxpayers receiving these
credits. This growth has primarily involved enactment of new income
tax credits and the expansion of existing ones, especially
refundable tax credits (which allow a rebate to the taxpayer of any
balance after the credit is applied against the tax owed to the
IRS). Two refundable tax credits in particular-the Earned Income
Tax Credit (EITC) and the Child Tax Credit (CTC)-have reduced rural
poverty and boosted income for low-and middle-income rural
households. These and other tax policies, however, could be
affected by tax reform or be allowed to expire, since some
provisions are only temporary. This report examines the effects of
current tax provisions targeting low- and moderate-income
households in rural America-focusing on the EITC and the CTC-and
compares them with traditional income support programs.
What Did the Study Find?
• Over the last two decades, income tax credits targeted to
low-income households have markedly increased. In 1990, the EITC
provided $4.4 billion in payments to low-income households; in
2008, the total amount provided by the EITC and the CTC exceeded
• In 2008, rural taxpayers reported an average adjusted gross
income (AGI) of $43,616 compared with $60,841 for urban taxpayers.
The poverty rate was also significantly higher in rural areas (15.1
percent) than in urban areas (12.9 percent).
• Overall, in 2008, one of every three rural taxpayers received
benefits from either the EITC or the CTC. These two refundable tax
credit programs provided a total of $20.6 billion to rural
taxpayers. Of this, $13.7 billion (about two-thirds of the total
benefit) exceeded individual taxpayer liabilities and was refunded.
These two tax credits provided a 13-percent increase in income, on
average, to those receiving one or both of the credits.
• A larger share of eligible households receive the EITC compared
with other Federal low-income support program payments, and EITC
and other tax-based benefits represent an increasing share of
low-income support funding. However, compared with traditional
income-support programs, a greater share of the EITC benefits go to
low-income households that are above the poverty level.
How Was the Study Conducted?
This report uses both published and special tabulation data
obtained from the Internal Revenue Service (IRS) to evaluate the
growth of the EITC, CTC, and other tax credits supporting a variety
of social policy objectives. The effect of these policies on rural
taxpayers' income and on rural poverty was determined by using a
zip code approximation of the 2006 Rural-Urban Commuting Area Codes
(to identify rural taxpayers) and matching the zip code data with
IRS tax data.