News
Jan. 2, 2018
SOURCE: Annie Lowrey – The Atlantic

The Republicans’ sweeping $1.5 trillion tax legislation touches nearly every part of the federal code: shifting around brackets, creating major new business loopholes, encouraging companies to move hundreds of billions of dollars back from overseas, changing how state and federal taxes interact, and parceling out hundreds of billions of dollars of cuts, most to the wealthy and to corporations. But a few parts of the tax code remained largely unchanged during the reform process. That includes one of the government’s biggest and most effective programs to encourage poor Americans to work and to make that work worth the time and effort, with new research showing just how effective it is.

That program is the Earned Income Tax Credit, which supported roughly 28 million families with an average credit of $2,440 as of 2015, pushing 3.3 million kids above the poverty line. The policy is a rare bipartisan one, expanded both by Ronald Reagan and Bill Clinton and supported by both Republicans and Democrats, at least superficially, on the Hill today. Its popularity stems in no small part from the fact that the EITC is not just a handout, but a program that induces more people into the workforce and encourages them to work more, by bolstering their wages. To get the credit, a single mother needs to have earned income—meaning wages or other income she makes herself. And the credit is structured not to penalize her for earning more by eating away at her benefits if she does.

The incentive works: One study found that a $1,000 increase in the EITC led to a 7.3 percentage point increase in employment and a nearly 10 percentage-point reduction in the share of families in poverty. Its benefits are far-reaching, too. For lower-education single mothers, an additional $1,000 in the EITC is associated with a 6.7 to 10.8 percent drop in the share of infants being born with low birth weights, with bigger impacts for black mothers.



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