Overview of The Policy
The Earned Income Tax Credit (EITC) is a social welfare policy that provides tax credits to low-income working families in the United States. It was initially established in 1975 as a temporary program under President Ford, but it was made permanent in 1978 (Boardman, 2019). Since then, the EITC has undergone several revisions to expand its scope and increase the benefits available to eligible taxpayers. For example, it was expanded to include childless workers in 1986, and in 1990, the maximum credit for families with one child was increased, and the credit was extended to larger families (Boardman, 2019).
The policy was also expanded in 1993 to increase the credit amount for families with two or more children and to adjust for inflation (Boardman, 2019). There have been several other changes to the EITC, including increasing the credit for childless workers in 2009 as part of the American Recovery and Reinvestment Act (Boardman, 2019). Overall, these revisions have been aimed at increasing the effectiveness of the policy in addressing poverty by increasing the credit amount for families with children, extending the credit to childless workers, and adjusting for inflation.
Socially, the policy was created to address poverty among working families in the US. Despite working hard, many low-income families struggled to make ends meet due to low wages and limited opportunities for upward mobility. Thus, it was designed to provide a financial boost to these families by granting tax credits that lowered tax liability and led to a refund in some cases.
The primary goal of the EITC is to offer financial assistance to working families with low incomes (Hoynes & Patel, 2018). To achieve this, the policy offers tax credits based on income, with larger credits available to those with lower incomes. The policy is structured so that it Gradually increases with rising income, enabling families to remain eligible to receive some level of aid even as they work to increase their earnings.
Political Factors
The primary sponsor of the policy was the Republican Party, which had a stance on poverty that aimed to provide low-income working families with financial support. The party believed a temporary tax credit program could provide financial support to help low-income working families make ends meet (Boardman, 2019). Thus, by offering tax credits that reduced the amount of taxes owed or resulted in a refund, the EITC provided a financial boost that could be used to cover essential expenses, such as housing and healthcare.
The creation of the EITC policy was the result of a collaborative effort between several political interest groups and lobbyists. Among them included the labor movement, business community, and non-profit organizations, including anti-poverty groups and civil rights groups (Lands, 2018). The stance of these interest groups on poverty, according to Lands (2018), was a driving force behind the creation of the policy. They recognized that poverty was a systemic issue that required a comprehensive solution, and the EITC was seen as one piece of the puzzle. Hence, by providing financial support to working families, the EITC could alleviate some of the most pressing symptoms of poverty, such as food insecurity and inadequate housing (Lands, 2018). Additionally, by incentivizing work, the policy could help to break the cycle of poverty and provide families with a pathway to economic stability and upward mobility.
Social Factors
The EITC policy was established to address the issue of poverty among low-income working families in the US. The values and ideals that underpin this policy include the importance of work, fairness, and reducing poverty. The EITC provides financial support to working families and individuals, with larger credits available to those with lower incomes. Moreover, the credit phases in as income increases, allowing families to continue to receive some support even as they work to increase their earnings. This structure aligns with the value of work, as the EITC provides an incentive for families to work and reduce their reliance on government assistance.
The political party that supported the creation of the EITC policy was the Republican Party. President Gerald Ford, a Republican, established the EITC as a temporary tax credit program in 1975 (Hoynes & Patel, 2018). The policy was made permanent under President Jimmy Carter, a Democrat, in 1978. However, since then, the policy has undergone several revisions under both Republican and Democratic administrations, highlighting the bipartisan support for the values of work, fairness, and reducing poverty.
However, while the EITC has enjoyed broad bipartisan support, some political groups have opposed the policy. Some conservative groups have argued that the EITC is a disincentive to work, as it can create a “welfare trap” by providing a disincentive to earn more income (Lands, 2018, pg 659). Nonetheless, the EITC’s structure as a tax credit that phases in as income increases has largely mitigated this concern.
Furthermore, the policy has consistently enjoyed strong public support, making it difficult for opponents to challenge the policy successfully. Several historical events may have influenced the creation and expansion of the EITC policy. For example, in the 1970s, according to Boardman (2019), the United States experienced a period of economic stagnation, with high levels of inflation and unemployment. The EITC was designed to provide financial relief to low-income working families facing difficulty in covering basic expenses during this period.
Economic Factors
The Congressional Budget Office (CBO) provides valuable information about the policy’s costs over time. The initial projected cost of the EITC policy was estimated to be $1.5 billion in 1975, the year it was introduced (Congressional Budget Office, n.d.). In 2021, the cost was projected to be $64.8 billion, a significant increase from the initial estimate (Congressional Budget Office, n.d.). The increase in cost can be attributed to several factors, including the expansion of the EITC to cover more people, changes in the tax code, and changes in the poverty rate. For example, in 1993, the EITC was expanded to include families with three or more children, which increased the number of people who qualify for the credit.
In my opinion, the social welfare benefits of the EITC policy outweigh the costs. The EITC has effectively reduced poverty rates and provided much-needed financial support to low-income families. It also provides incentives for individuals to work and can help boost the economy by increasing consumer spending. Several options are available to reduce the policy costs. One possible option is to tighten the eligibility requirements to ensure that only those who truly need the support receive it. Another option is to increase the administrative efficiency of the program to reduce waste and fraud.
Assessment
The reduction in poverty and the impact on low-income families measure the success of The Earned Income Tax Credit (EITC) policy. The policy has successfully assisted millions of low-income workers, including single parents, by supplementing their wages and reducing the burden of federal income taxes. Research has shown that the EITC has significantly reduced poverty and increased employment among low-income families. For example, a study by the Center on Budget and Policy Priorities found that the EITC lifted 5.8 million people out of poverty in 2019, including 3 million children (Marr et al., 2020). Additionally, the EITC has been found to encourage work, as low-wage workers have a stronger incentive to work when they receive a tax credit for doing so.
References
Boardman, A. (2019). The Rhode Island Earned Income Tax Credit: History and Analysis. The Rhode Island Earned Income Tax Credit: History and Analysis.
Congressional Budget Office. (n.d.). Web.
Hoynes, H. W., & Patel, A. J. (2018). Effective policy for reducing poverty and inequality? The Earned Income Tax Credit and the distribution of income. Journal of Human Resources, 53(4), 859-890. Web.
Lands, L. B. (2018). Lobbying for welfare in a deep south state legislature in the 1970s. Journal of Southern History, 84(3), 653-696. Web.
Marr, C., Hingtgen, S., Sherman, A., Windham, K., & Cox, K. (2020). Temporarily expanding child tax credit and earned income tax credit would deliver effective stimulus, help avert poverty spike. Center on Budget and Policy Priorities. Web.