Two Million African American Families to Benefit from Child, Earned Income Credits

Two Million African American Families to Benefit from Child, Earned Income Credits


President Barack Obama recently released a fact sheet providing some details on a proposed tax cut framework agreed upon by the White House and Congressional leaders. Under the framework, the President and Congressional agreed to extending the reductions in tax rates passed into law in 2001 and 2003.  These are commonly referred to as the Bush tax cuts.

The framework calls for a $120 billion reduction in payroll taxes and an additional $40 billion in tax relief for what the White House terms as hardest hit families, and $56 billion in financing for unemployment insurance.

There was concern that 2 million Americans would run out of unemployment insurance benefits by year end and a total of 7 million Americans would run out of benefits by the end of 2011. The unemployment package would extend benefits another 13 months.

The framework also proposed to extend the Child Tax Credit and the Earned Income Credit for two more years. The effect of the extension would be to lower the tax liability of low income households. Approximately 12.2 million American families would benefit including 2.2 million African American families.  According to the White House, total tax credits would amount to $2,400.

Tax cuts along with increased government spending are intended to stimulate the economy. The extent to which national output or gross domestic output would grow will depend on how much of the tax savings Americans eventually spend.

Based on an analysis by, if Americans spent 75 cents of every tax dollars saved, then the $160 billion in tax cuts and credits announced yesterday would result in an initial increase in consumption of $90 billion. This initial consumption would start a multiplier or ripple effect through the economy and eventually generate $360 billion in total national output.

The framework so far appears to be the first feather in Mr. Obama’s bipartisanship hat. On December 6, Senator Mitch McConnell (R-KY), current minority leader, released a statement expressing his appreciation for the efforts on the part of President Obama and Vice-President Joseph R. Biden in preventing tax hikes. “Their efforts reflect a growing bipartisan belief that a new direction is needed if we are to revive the economy and help put millions of Americans back to work,” Senator McConnell said.

The next step is now for Congressional leaders to persuade their parties to vote for the agreement.