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Is the United States Earned Income Tax Credit Fair?

Introduction

The United States Earned Income Tax Credit (EITC) refers to a government initiative that aims to improve the financial stability of citizens by giving tax refunds to citizens (Cordes, Ebel, & Gravelle, 2005). Individuals who get tax credits retain more of their income. For that reason, EITC lowers the taxes that certain individuals pay. On the other hand, it allows low-income earners to pay low taxes so that they can have sufficient money to care for themselves and their families. The EITC is available to low-income earners whose earnings are not enough to fulfill all their needs (Cordes et. al, 2005). There are certain requirements that should be fulfilled before an individual can qualify for a tax credit. For instance, an applicant must be an American citizen and must have earned a certain amount of income. The service sets certain standards for individuals with investments and requires applicants to have Social Security numbers (Pollin, 2008). The EITC is fair because it promotes economic and social equality, encourages access to economic opportunities, and improves the financial positions of low-income earners.

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Arguments for and against the EITC

As mentioned earlier, the Earned Income Tax Credit allows low-income earners and families with children to receive tax refunds. The main aim of the service is to improve the financial status of low-income families by stabilizing their incomes. Many people benefit from the service. For instance, in 2013, government reports revealed that more than $36 billion was paid out to families as tax refunds. The amount is projected to increase in the coming years owing to harsh economic times and a high rate of unemployment. The service has been criticized. Opponents argue that it gives some people a leeway to avoid paying taxes and take advantage of the service for personal gains. In addition, they argue that it promotes irresponsibility and poor financial decisions. The EITC is fair because it promotes financial equality, stabilizes the incomes of low-wage earners, promotes economic opportunities, and reduces the financial oppressions of low-income earners (Hoffman & Seidman, 2003).

The EITC is fair

The EITC is fair because of its benefits to poor individuals and families. In America, the gap between the rich and the poor widens every day. Therefore, it is imperative to find ways to reduce the gap. One of the ways to reduce the gap is by allowing low-income earners to pay lower taxes compared to middle and high-income earners (Pollin, 2008). The EITC plays this role effectively. It is unfair for low-income earners to pay the same amount of taxes that middle and high-income earners pay. The service has contributed significantly towards improving the lives of low-income families (Hoffman & Seidman, 2003). On the other hand, the EITC has reduced the gap between the rich and poor because it encourages the redistribution of wealth. This goal is attained by ensuring that individuals and families that earn low wages pay less tax.

The EITC has another positive effect on many people because it encourages them to work. For that reason, it is fair because it allows poor families to improve the quality of their lives. Many people refrain from employment because of the high taxes that they are required to pay. However, with a legal provision that facilitates tax refunds, many people are motivated to find jobs and work hard (Hoffman & Seidman, 2003). Many people depend on government welfare programs for survival even though money received from welfare programs is insufficient to support their families. The government established the EICT in order to eradicate dependence on welfare programs. Minimum wage jobs offer less money compared to the amount offered by certain welfare programs. This motivates many people to opt for welfare programs rather than low-wage jobs. However, this dependence is curtailed by the EITC because it encourages people to work rather than depend on welfare programs (Cordes et. al, 2005).

Another reason why the EICT is fair is the critical role it plays in promoting the development of local economies and businesses. Research has revealed that people spend more during periods of tax refunds compared to other periods. This happens because they get money to spend through tax refunds. The money spent during major holidays such as Christmas is less than that spent during tax refund periods. High spending is beneficial to local businesses because they use the money to grow and expand their operations. In addition, high spending is beneficial to the national economy. Businesses in poor neighborhoods experience slow growth because residents have little money to spend. However, the IETC enables people to spend more and thus contribute to economic growth in low, middle, and high-income neighborhoods.

The EICT is fair because it empowers low-wage families to get out of debt and move toward financial stability and independence. Debt is one of the factors that encourage dependence on government welfare programs. Even though opponents of the service argue that it hurts high-income earners, its benefits outweigh its disadvantages. In today’s world, many students graduate from colleges and universities with huge debts in student loans. These loans affect them significantly because they affect their financial independence and stability. Some students who graduate with huge debts usually have families to take care of. Therefore, without the EITC, their lives would be very tough. Low-wage families use the money they receive through tax refunds to pay for their children’s tuition fees in order to lower their student loans. For that reason, the EITC has positive outcomes that improve the lives of families. Experts argue that the service has long-term economic benefits (Hoffman & Seidman, 2003). Even though many people receive tax refunds, they still pay federal income taxes in billions of dollars that are used to grow the economy. Therefore, the EITC is beneficial to the economy in the long term. On the other hand, it has positive health outcomes because many families can afford medical care services. In recent years, the cost of health care has been on the rise. Due to high costs of health care and high rates of unemployment, many families experience tough times due to a lack of quality health services and tough financial times. However, through the EITC, many families can afford quality health care services that are not guaranteed under the Medicare program (Pollin, 2008). The service is fair because it considers the plight of the aging population. Older people have little energy and therefore, cannot work to support themselves. The government mitigates the problem by giving them tax refunds that improve their health and well-being.

Research studies conducted on the effectiveness of the EITC revealed that it encourages hard work. Single mothers work harder because of the assurance that they will retain a large percentage of the money they earn (Pollin, 2008). This has reduced child poverty and mortality significantly. The service is fair because single mothers and low-wage families are able to improve the quality of their lives. Middle and high-income earners can afford quality health care without struggle. Therefore, in order to create balance, low-wage earners should pay lower taxes. On the other hand, many low-wage families comprise many children that have numerous needs. These families need more money to fulfill their needs compared to middle and high-income families that in most cases have fewer children. The expenses of these families are many, hence the need for tax refunds (Pollin, 2008). Giving tax refunds to low-wage families is fair because it enables them to improve their lives. Poor families do not choose to live in poverty. Therefore, helping them is fair.

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Arguments against EITC and counterarguments

Opponents of the EITC argue that it encourages the evasion of taxes (Barlett & Steele, 2002). Furthermore, they argue that middle and income wage earners should not be coerced to pay taxes on behalf of low-wage earners because of their failure to plan their finances properly. However, low-wage earners pay other forms of taxes. The argument that the EITC discourages people from working and finding high-paying jobs is flawed. The rate of unemployment in the U.S. is 6.7 percent. This implies that many people are unemployed. Only a few jobs that can elevate low-income earners into the middle class are available. On the other hand, high-paying jobs require high levels of education (Pollin, 2008). Many people settle for low-wage jobs that do not require high levels of education. In addition, many corporations and organizations pay low wages as a strategy to cut expenses. For that reason, low-income earners should not be blamed because their status is largely determined by the current state of the economy. Opponents also claim that the EITC promotes irresponsibility and poor financial decisions (Barlett & Steele, 2002). They argue that recipients of tax credits use the money to buy expensive electronics and things that do not improve their lives. However, this argument is not valid. The process of issuing tax credits is conducted in accordance with the law in order to ensure that approved applicants are truly in need of refunds. Recipients of tax credits are at liberty to spend the money in ways they deem appropriate for the improvement of their lives.

Conclusion

Earned Income Tax Credit (EITC) is a financial incentive offered to low-wage earners in order to improve the quality of their lives. It involves giving tax refunds to individuals who earn little money or who have minimum wage jobs. The service is fair because it encourages social and economic balance, and alleviates poverty. It has positive outcomes for students especially those who graduate with high student loans. It is unfair to criticize low-wage earners because they do not choose to earn little or live in poverty. Tough economic times and a high rate of unemployment are examples of factors that contribute to their situations. Opponents argue that the EITC encourages irresponsibility and poor financial decisions. However, individuals who receive tax refunds are at liberty to do whatever they want with the money in order to improve the quality of their lives.

References

Barlett, D.L., & Steele, J. B. (2002). The Great American tax dodge: How Spiraling Fraud and Avoidance Are Killing Fairness, Destroying the Income Tax, and Costing You. New York: University of California Press.

Cordes, J.J., Ebel, R.E., & Gravelle, J. (2005). The Encyclopedia of Taxation and Tax Policy. New York: The Urban Institute.

Hoffman, S.D, & Seidman, L.S. (2003). Helping Working Families: the Earned Income Tax Credit. New York: W.E. Upjohn Institute.

Pollin, R. (2008). A measure of Fairness: The Economics of Living Wages and Minimum Wage in the United States. New York: Cornell University Press.

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StudyCorgi. (2022, March 29). Is the United States Earned Income Tax Credit Fair? Retrieved from https://studycorgi.com/is-the-united-states-earned-income-tax-credit-fair/

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