Earned Income Tax Credit: Unequal Access and Unequal Outcomes

Background Purpose

The Earned Income Tax Credit (EITC) has been a part of the American welfare system since the 1970s. In its first manifestation the credit targeted individuals of a low socioeconomic status with a child dependent, seeking to lower the welfare roles by offering cash incentives to those participating in the workforce (Eissa & Liebman, 1997).  Since its first iteration the program has expanded 5 times, and now includes several other qualifying categories (i.e. non-married individuals without children, married couples without children, and different categories for people with 1, 2, or 3 or more children). Under one expansion in the mid-90s the EITC established a new objective to alleviate poverty (Ault & Bucknor, 2014; Hungford & Thiess, 2014). Research has shown that the EITC has been largely successful for ending poverty among individuals and couples with children. However, there is unfair disparate effect for all other categories in particular individuals and married couples without children. This engenders an incentive for individuals with children and punishes those without. The data analyzed uses a unique economic measure not found in other academic literature on EITC.   

Methods:

The research involved a longitudinal data analysis of the poverty thresholds (P) and EITC threshold phase-outs (E) between the years 1994 and 2014.  This information was analyzed by using the equation E/P which obtains an economic measure Percent of Poverty (PoP). A measure that represents the number of times an individual or family can exceed P while still potentially benefiting from the tax credit.

Results

On average between 1994 and 2014 all categories with children can exceed the poverty threshold (P) 100 percent more than those without children. On average the category that has received the largest Percent of Poverty (PoP) are single persons with one children. This category has benefited a full 117 percent on average more than a single person with no children. The category with the lowest overall PoP are married couples with no children. They can receive money from EITC when their income is on average 14 percent above P. This can be contrasted to couples with only one child can receive EITC when their income is an average of  119 percent above P.           

Conclusions and Implications

The finding show that the average Percent of Povery (PoP) percentages vary drastically between those with and without children. Those with children can take advantage of the EITC when their income is on average 117 percent above the poverty threshold (P), while those without have a PoP of 16 percent above P. This means single adults without children living responsibly and making wages just above P are not benefiting at the same rate as those with children making wages will into the middle-class. The EITC is unequally distributed and needs to be assuaged. This should be done through a policy proposal that adjusts the EITC phase-out (E) of those without children to 2 times their current levels.