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More on California Fiscal Policy: Tax Programs Provide More Support than Welfare Grant Programs
More on California Fiscal Policy: Tax Programs Provide More Support than Welfare Grant Programs
Published November 8, 2013
The pages of the Controller's monthly cash report often focus on the State’s main sources of revenue, the impact of their totals and collection intervals, and disbursements for state and local programs. But there is another side of the tax code that should also be a point of focus. The Federal tax code itself is not just a collection tool – it's also the delivery method for the largest form of direct financial aid in the nation.
This year marks the 50th anniversary of the federal launch of Aid to Families with Dependent Children (AFDC). President Clinton's welfare reform legislation renamed this program the Temporary Assistance for Needy Families (TANF) program in 1996. For most people, AFDC/TANF represents the federal government’s largest income-assistance program for families with children but in practice, two tax expenditures—the Earned Income Tax Credit (EITC) and the Children’s Tax Credit (CTC) have been providing more assistance to families since 2004.
- AFDC/TANF: The federal government began providing assistance to families with children in 1936. Originally named Aid to Dependent Children (ADC), Congress renamed the program Aid to Families with Dependent Children (AFDC) in 1963. Between 1975 and 2003, the amount of assistance provided by the program rose from $21 billion to a high of $31 billion. In 2010 the amount of assistance provided fell below $30 billion. (Dollars are all inflated to 2010 values.)
- The EITC: A refundable tax program with strict income limits, the EITC is intended to provide income support for low-income households. The amount of funds it has provided exceeded the amount of funding provided through AFDC in the early 1990s, rising from $ 6 billion in 1975 to $61 billion in 2010.
- The CTC: This tax credit for families with children, which began in the late 1990s, has far fewer limitations compared to the EITC, so it provides tax relief for higher-income families. The amount of tax credits provided through the CTC rose from $20 billion in 1998 to $28 billion in 2010.
Figure 2 summarizes the federal spending on the three income-assistance programs and shows that while AFDC/TANF spending has grown over time, it has grown at a much lower rate than the tax programs. Beginning in 2004, both tax programs have provided more assistance than AFDC/TANF assistance.
The EITC may be the largest assistance program, but it is generally targeted to the working poor. People with a high income are generally ineligible for the program.
The CTC, in contrast, is not targeted to the working poor. It is available to most taxpayers with children.
The credits are particularly important to California because the State does not match either of these federal programs. The closest State program, called the California Homeowner’s and Renter's Assistance credit, was eliminated during budget cutbacks in 2008.
As the State's chief fiscal officer, Controller Chiang puts heavy emphasis on connecting working families with the tax credits available to them. Since the aid is delivered through the tax code, a return must be filed to claim any amounts. Lower-income taxpayers often do not have the means to hire a professional tax preparer, so the Controller has organized annual programs that provide specially-trained volunteers with those who are eligible for credits. His efforts have returned more than $8.1 million in refunds and credits to 6,100 individuals and families.
For more information on tax assistance, visit the Controller's California Strong program, or visit his website at www.californiastrong.ca.gov.
Figure 2: Comparison of Federal Spending on Selected Income Support Programs
AFDC/TANF, EITC and CTC from 1975 to 2010
Source: Tax Policy Center (10/21/13)