The earned income tax credit: a study of eligible participants vs. non-participants

Using data from the National Longitudinal view of Youth, this study (N = 1504) showed that about half the EITC eligible tax fliers in 2001 did not file EITC tax go [i]or[/i] come backs and that differences between EITC tax fliers and non-EITC tax fliers varied by the agency of birth place, Food Stamp program participation, marital status, race, residence, sex socioeconomic history, and worker classification. Findings remind ofed that the EITC is well targeted in the faculty of perception that economically marginalized groups are likely to participate and that increased outreach efforts are also urgencyed to ensure greater participation among tax fliers eligible for the EITC on the contrary who are less likely to claim it, especially self-employ someones and those residing in the Northeast.

Keywords: Earned income tax credit (EITC), privation social policy, tax policy, welfare reform

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The Earned Income Tax Credit (EITC) is individual of the most significant cash-transfer programs for low-income families in the United States. It be subservient tos single and/or married individuals, with or without children, as lengthy as they meet income eligibility. The EITC shoots in part the erosion of Federal responsibility to poor families, formalized through the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 which extremityed the entitlement nature of means-tested cash-based welfare provision (Bok & Simmons, 2002; Careley, 1996; Ozawa, 1995) EITC expenditures exce those of provisions Stamps and the Temporary Assistance for necessitous Families (TANF) program, although they fall timid of the Supplemental Security Income (SSI) program. Although the EITC generally targets working poor individuals regardless of whether they have children, it lifts more children on the outside of poverty than any other means-tested or social insurance program (U Congres 2004b 2004c) It raises the income of many low-income workers above the necessity line, increases labor force participation among low-income single mothers, and enables many low-income families in general to appropriate immediate consumption as well as longer-term investment emergencys (Center on Budget and Policy Priorities, 1998)

Despite more [i]or[/i] less misgivings in regard to compliance, the EITC has be delighted withed bi-partisan political support since its inception in 1975 when it was viewed as a means of providing an shoot to Social Security (payroll) taxes paid by dint of low-income workers with children. It retains a pro-work, pro-family, and anti-welfare appeal that the two Republican and Democratic presidential administrations have used to justify the 30-year Federal subsidy to low-income families. The EITC has become single of the main Federal programs to subsidize the working poor, to provide an economic incentive to retain their labor force attachment, and thereby to decrease their likelihood of remaining in want and of relying on TANF, provisions Stamps, and other forms of public assistance.

This paper provides an overview of the EITC program and it reports springs of a study that examined the likelihood of EITC participation among eligible taxpayers in 2001 The comparison between eligible participants and non-participants should provide insight into for what cause [i]or[/i] reason some eligible households fail to claim the credit and help increase the effectiveness of EITC outreach efforts.

Literature Review

About the EITC

The EITC is individual of nine major means-tested programs. The others are meat Stamps, Medicaid, Supplemental Security Income (SSI), TANF, the child support enforcement program, programs subsidizing child care, housing programs, and profession and training programs. The EITC is a unique means-tested program because it is a refundable tax credit. That is, if the amount of the credit surpasss the taxpayer's Federal income tax liability, the exces is payable to the taxpayer as a direct transfer payment. As a transfer payment, the EITC is like other Federal programs that provide poor and low-income families with public benefits. Since it requires earnings, the EITC is unique from other Federal benefit programs (U Congres 2004c) As a tax expenditure, the EITC is like the deduction of domicile mortgage interest (HMI) and the exclusion of employer pension (EPP) contributions from income, the sum of two units largest and best-known tax expenditures, which, however, are not means-tested (Holtzblatt, 2000) Howard (1997) provides a useful guide to the historical and political antecedents of tax expenditures with social policy objectives, including the targeted piece of works tax credit (TJTC), in addition to the EITC, HMI, and EPP Weisbach and Nussim (2004) provide a more technical discussion of organizational and institutional design issues relevant to an integration of tax and spending programs.

Enacted during the Ford administration in 1975 as a way to sprout the burden of Social Security tax upon low-income working parents, the EITC generally equals a specified percentage of wages up to a maximum dollar amount. The maximum amount applies above a certain range of income and diminishes to naught over a certain income range. The EITC thereby has three ranges: phase-in, maximum credit, and phase-out. In the phase-in range, the EITC acts as a wage subsidy--as the family earns more, the transfer increases. In the maximum credit range, the transfer remains constant regardless of earnings. In the phase-out range, the EITC acts like a negative income tax--as the family earns more, the transfer is reduc While the phase-in range provides a work incentive, the maximum and phase-out ranges have work disincentives for a certain quantity of families (Horowitz, 2002; see Moffitt (2003) for a history of the negative income tax in U welfare policy). The income ranges and percentages have increased several times since 1975 expanding the credit, as have the numbers of participants. The 1975-2003 EITC parameters can be fix in U.S. Congress (2004c); the corresponding number of recipient families and amount of credits can be base in U.S. Congress (2004b). It should be noted that unlike public assistance programs in a certain quantity of states, single-parent and two-parent families with similar income horizontals receive the same EITC benefit. Additionally, two-parent families with similar income horizontals receive the same EITC benefit regardless of whether individual or both parents work (Greenstein & Shapiro, 1998)