Examining Earned Income Tax Credit

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It's time for another installment in Morning Edition's 12 Days of Tax Deductions — a check on some of the deductions, credits and tax breaks that could be on the chopping block as the government seeks to raise revenue and reduce debt.

RENEE MONTAGNE, HOST:

And we are another day closer to the end of the year, which means that we're another day closer to the fiscal cliff, and still no budget deal from our political leaders. They're trying to avoid the economic shock of automatic spending cuts and tax hikes set to kick in next month. And this brings us to the next installment of our 12 Days of Tax Deductions.

(SOUNDBITE OF SONG, "12 DAYS OF CHRISTMAS")

MONTAGNE: It's MORNING EDITION's look at some of the deductions, credits and tax breaks that lawmakers are considering as the government seeks to raise revenue and reduce debt.

DAVID GREENE, HOST:

Today, a tax credit that has become one of the government's largest anti-poverty programs, it is the Earned Income Tax credit. Tax analyst Mark Luscombe explains it has its roots in the welfare reform efforts of the 1970s.

MARK LUSCOMBE: We wanted to encourage employment even if you were in a relatively low-paying job to say, you know, as long as you're employed and have earned income the tax law will help you out by actually giving you a refund based on your earnings.

MONTAGNE: Since it was established in 1975, that credit has become more generous over the years. The IRS says more than 26 million people claimed it in the 2011 tax year.

GREENE: And the cost to the government comes out to nearly $61 billion.

LUSCOMBE: But I would say, at this point, the earned income credit is sort of so ingrained in the tax code that no one expects that one to get eliminated completely.

MONTAGNE: Other analysts agree that the earned income tax credit will likely stay intact, given the rising number of people under the poverty line, and the historic support this tax policy has had from conservatives. Monday morning we'll learn about the child tax credit.

GREENE: And that's the business news on MORNING EDITION from NPR News.

MONTAGNE: I'm Renee Montagne.

GREENE: And I'm David Greene.

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