Social Tax Policies Directed at the Working Poor: The New York State Experience

Abstract

Major changes in federal and state welfare systems have created new opportunities for the development of innovative social policies aimed at low-income individuals who desire to work. New York State, which had one of the most generous earned income tax credits and child and dependent care credits among the states, is now using federal funding through the Temporary Assistance to Needy Families program to finance enhancements in these tax cred- its. The authors demonstrate the impact of the combined income tax credits on low-income taxpayers. The results show that over the past seven years, effective tax rates have decreased markedly and become negative for these taxpayers. In effect, New York pro- vides direct cash rebates to working poor families, and these tax subsidies are among the largest of all the states.