Refundable Tax Credits

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Congressional Budget Office;
(2013)

In 1975, the first refundable tax credit—the earned income tax credit (EITC)—took effect. Since then, the number and cost of refundable tax credits—credits that can result in net payments from the government—have grown considerably. Those credits will cost $149 billion ... View more
  • References (34)
    34 references, page 1 of 4

    1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 Source: Congressional Budget Office.

    Notes: Date labels refer to the beginning of the calendar year. Most refundable credits took effect on January 1 and expired on December 31 of the applicable year. For credits that took effect or expired on different dates, see Table A-1. COBRA = Consolidated Omnibus Budget Reconciliation Act.

    a. The original legislation also allowed corporations to claim a refundable research credit under certain circumstances. That provision expired on December 31, 2009.

    10. See Dennis J. Ventry Jr., “The Collision of Tax and Welfare Politics: The Political History of the Earned Income Tax Credit,” in Bruce D. Meyer and Douglas Holtz-Eakin, eds., Making Work Pay: The Earned Income Tax Credit and Its Impact on America's Families (Russell Sage Foundation, 2002), pp. 15-66, www.russellsage.org/publications/making-work-pay.

    12. See House Committee on Ways and Means, Tax Reduction Act of 1975, Report 94-19 (February 25, 1975); and Senate Committee on Finance, Tax Reduction Act of 1975, Report 94-36 (March 12, 1975).

    18. The exchanges will group health plans into four tiers labeled “bronze,” “silver,” “gold,” and “platinum.” Each tier will cover a specified set of benefits, paying (on average) 60 percent, 70 percent, 80 percent, or 90 percent, respectively, of a beneficiary's claims. The reference premium is the cost of the silver plan with the second-lowest cost in the locality. For more information, see Congressional Budget Office, Additional Information About CBO's Baseline Projections of Federal Subsidies for Health Insurance Provided Through Exchanges (May 2011), www.cbo.gov/publication/ 41464.

    19. Another development since 2008 was the creation of “bond credits.” The prototype (and, with costs of $3 billion a year, the largest by far) was the Build America Bond program created by ARRA. Under that program, state and local governments receive direct payments from the federal government to reimburse them for the amounts they pay to holders of certain types of bonds. Although the credits are defined in the tax code as refundable, they are identical to other federal grants to state governments. For that reason, bond credits are not discussed in this report.

    22. See Bruce D. Meyer and Dan T. Rosenbaum, “Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers,” Quarterly Journal of Economics, vol. 116, no. 3 (2001), pp. 1063-1114, http://qje.oxfordjournals.org/content/116/3/ 1063.abstract.

    23. See Jeffrey Grogger, “The Effects of Time Limits, the EITC, and Other Policy Changes on Welfare Use, Work, and Income Among Female-Headed Families,” Review of Economics and Statistics, vol. 85, no. 2 (May 2003), pp. 394-408.

    24. See Lily L. Batchelder, Fred T. Goldberg Jr., and Peter R. Orszag, “Efficiency and Tax Incentives: The Case for Refundable Tax Credits,” Stanford Law Review, vol. 59, no. 23 (2006), pp. 23-76.

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