By Luis Bravo
Luis Bravo is a sophomore at the University of Pennsylvania studying sociology.
Tax credits have become a popular buzzword of the Republican party and recently made their way into Donald Trump’s new child care plan. This plan depends heavily on tax breaks to assist Americans in paying for child care expenses [1]; however, the very people this plan intends to aid are least likely to be beneficiaries. Because the majority of low-income and working class Americans don’t pay federal income taxes, they would be unaffected by increased tax breaks. [2] Though largely ineffective, there is a glimmer of hope in the President’s child care plan - a modest expansion to the Existing Earned Income Tax Credit (EITC). As one of the most effective, means-tested welfare programs in the country, the EITC is crucial for millions of working families struggling to make ends meet. Expanding it is imperative to continue the fight against poverty and ensure all Americans have an adequate standard of living.
Luis Bravo is a sophomore at the University of Pennsylvania studying sociology.
Tax credits have become a popular buzzword of the Republican party and recently made their way into Donald Trump’s new child care plan. This plan depends heavily on tax breaks to assist Americans in paying for child care expenses [1]; however, the very people this plan intends to aid are least likely to be beneficiaries. Because the majority of low-income and working class Americans don’t pay federal income taxes, they would be unaffected by increased tax breaks. [2] Though largely ineffective, there is a glimmer of hope in the President’s child care plan - a modest expansion to the Existing Earned Income Tax Credit (EITC). As one of the most effective, means-tested welfare programs in the country, the EITC is crucial for millions of working families struggling to make ends meet. Expanding it is imperative to continue the fight against poverty and ensure all Americans have an adequate standard of living.
The Earned Income Tax Credit is a benefit for poor and working class Americans that was first introduced in 1975 as part of a temporary effort to counteract rising prices in the energy and food markets. [3] This program quickly established itself as an important anti-poverty tool and was expanded in several occasions, most recently in 2012. [4] Unlike the name suggests, the EITC is more of a refund than a credit as it supplements annual income through direct subsidies distributed annually by the Internal Revenue Service. The amount given to each family depends on both income and family size. As households earn more, the amount they are eligible for as part of the EITC is reduced. In contrast, regular tax credits act as itemized deductions that reduce your total amount of taxable income. Unlike other welfare programs, you must be working to qualify for the EITC and this has led to considerable bipartisan support. [5]
The benefits of the Earned Income Tax Credit are profound and far reaching. Primarily and as mentioned earlier, the EITC has been found to be the most effective welfare program in pulling families out of poverty. In 2013 alone, it is estimated the EITC helped lift 9.4 million people out of poverty, 5 million of those being children. Additionally, 22 million people were less impoverished as a result of this tax benefit [6]. Part of its effectiveness stems from the fact that it targets beneficiaries based on income and family size, allowing it to efficiently distribute funds to those most in need. Additionally, it is responsive to the changes in the geographic composition of poverty and unlike the minimum wage, fluctuations in price inflation.
The EITC refunds also promote secondary benefits that improve people’s overall quality of life. Research shows that not only does increased Earned Income Tax Credit benefits incentivize working, but it also improves the health of children (particularly infants and newborns), translates to better school performance in children, results in greater college enrollment, and even promotes higher earnings for future generations [6]. Lastly, the EITC has recently been found to have significantly positive societal impacts. According to recent research by a group of leading sociologists, recipients of the EITC highly valued the temporary debt relief and felt like their chances of upward mobility were improved. Overall, these families felt an “enhanced feelings of citizenship and social inclusion” not possible through other welfare benefits. [4]
Though the Earned Income Tax Credit offers a plethora of benefits, that is not to say it is free of faults. Indeed, there are many areas where this policy could be improved. First, many claim the EITC is not a sustainable solution to poverty as it only offers temporary relief to needy families once a year. Consequently, this tends to discourage saving as the money is often immediately utilized to pay off outstanding debts and other large expenses.
A promising solution is to disperse EITC benefits in regular intervals, much like the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps. [7] This would provide both more regular financial support for families in need and incentivize saving. To truly promote differed consumption, however, the EITC benefits must be expanded to permit a greater level of disposable income to low-income and working class households. Saving match programs, like $aveNYC, also offer a potentially effective alternative.
Second, critics often claim overpayments and fraudulent claims make this a hefty and expensive policy. While EITC benefits account for only a fraction of the national budget (less than 2% of total spending in 2013), there are various steps that can be enacted to reduce overspending. Most notably, the enforcement capability by the IRS can be bolstered by granting it the authority to regulate commercial tax preparers and increasing funding so the IRS can investigate more claims. A much greater step would be to simplify the tax code as most EITC overpayments result from the complexity surrounding this benefit [8].
While the Trump administration’s plan to expand the Earned Income Tax Credit is insufficient for it to have a considerable impact, it is an important step in the right direction. Critics of the EITC will be quick to point out its flaws and some even call for the dissolution of the program all together. But to the millions of working families who depend on the Earned Income Tax Credit, the EITC is more than quick cash, but rather an escape route out of the profound pit of poverty. Increasing the Earned Income Tax Credit is thus more than simply providing financial assistance to households in need, but rather a way to protect our most disadvantaged citizen and their most fundamental human rights.
[1] “Donald J. Trump’s New Child Care Plan.” Accessed March 29, 2017. https://www.donaldjtrump.com/press-releases/fact-sheet-donald-j.-trumps-new-child-care-plan
[2] “Who Benefits from President Trump’s Child Care Proposals?” Tax Policy Center, February 27, 2017. http://www.taxpolicycenter.org/publications/who-benefits-president-trumps-child-care-proposals
[3] “The Earned Income Tax Credit and the Child Tax Credit: History, Purpose, Goals, and Effectiveness.” Economic Policy Institute. Accessed March 29, 2017. http://www.epi.org/publication/ib370-earned-income-tax-credit-and-the-child-tax-credit-history-purpose-goals-and-effectiveness/
[4] Sykes, Jennifer, Katrin Križ, Kathryn Edin, and Sarah Halpern-Meekin. “Dignity and Dreams: What the Earned Income Tax Credit (EITC) Means to Low-Income Families.” American Sociological Review 80, no. 2 (April 1, 2015): 243–67. doi:10.1177/0003122414551552.
[5] Internal Revenue Service. “Earned Income Tax Credit (EITC).” Accessed March 29, 2017. https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit
[6] Marr, Chuck, Chye-Ching Huang, Arloc Sherman, and Brendan Debot. “EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children’s Development, Research Finds.” Center on Budget and Policy Priorities, June 26, 2012. http://www.cbpp.org/research/federal-tax/eitc-and-child-tax-credit-promote-work-reduce-poverty-and-support-childrens
[7] Weingarten, Elizabeth. “The Problem with the Earned Income Tax Credit,” April 8, 2012. https://www.newamerica.org/asset-building/the-ladder/the-problem-with-the-earned-income-tax-credit/
[8] Greenstein, Robert, John Wancheck, and Chuck Marr. “Reducing Overpayments in the Earned Income Tax Credit.” Center on Budget and Policy Priorities, April 30, 2013. http://www.cbpp.org/research/federal-tax/reducing-overpayments-in-the-earned-income-tax-credit
The opinions and views expressed through this publication are the opinions of the designated authors and do not reflect the opinions or views of the Penn Undergraduate Law Journal, our staff, or our clients.
The benefits of the Earned Income Tax Credit are profound and far reaching. Primarily and as mentioned earlier, the EITC has been found to be the most effective welfare program in pulling families out of poverty. In 2013 alone, it is estimated the EITC helped lift 9.4 million people out of poverty, 5 million of those being children. Additionally, 22 million people were less impoverished as a result of this tax benefit [6]. Part of its effectiveness stems from the fact that it targets beneficiaries based on income and family size, allowing it to efficiently distribute funds to those most in need. Additionally, it is responsive to the changes in the geographic composition of poverty and unlike the minimum wage, fluctuations in price inflation.
The EITC refunds also promote secondary benefits that improve people’s overall quality of life. Research shows that not only does increased Earned Income Tax Credit benefits incentivize working, but it also improves the health of children (particularly infants and newborns), translates to better school performance in children, results in greater college enrollment, and even promotes higher earnings for future generations [6]. Lastly, the EITC has recently been found to have significantly positive societal impacts. According to recent research by a group of leading sociologists, recipients of the EITC highly valued the temporary debt relief and felt like their chances of upward mobility were improved. Overall, these families felt an “enhanced feelings of citizenship and social inclusion” not possible through other welfare benefits. [4]
Though the Earned Income Tax Credit offers a plethora of benefits, that is not to say it is free of faults. Indeed, there are many areas where this policy could be improved. First, many claim the EITC is not a sustainable solution to poverty as it only offers temporary relief to needy families once a year. Consequently, this tends to discourage saving as the money is often immediately utilized to pay off outstanding debts and other large expenses.
A promising solution is to disperse EITC benefits in regular intervals, much like the Supplemental Nutrition Assistance Program (SNAP), commonly known as food stamps. [7] This would provide both more regular financial support for families in need and incentivize saving. To truly promote differed consumption, however, the EITC benefits must be expanded to permit a greater level of disposable income to low-income and working class households. Saving match programs, like $aveNYC, also offer a potentially effective alternative.
Second, critics often claim overpayments and fraudulent claims make this a hefty and expensive policy. While EITC benefits account for only a fraction of the national budget (less than 2% of total spending in 2013), there are various steps that can be enacted to reduce overspending. Most notably, the enforcement capability by the IRS can be bolstered by granting it the authority to regulate commercial tax preparers and increasing funding so the IRS can investigate more claims. A much greater step would be to simplify the tax code as most EITC overpayments result from the complexity surrounding this benefit [8].
While the Trump administration’s plan to expand the Earned Income Tax Credit is insufficient for it to have a considerable impact, it is an important step in the right direction. Critics of the EITC will be quick to point out its flaws and some even call for the dissolution of the program all together. But to the millions of working families who depend on the Earned Income Tax Credit, the EITC is more than quick cash, but rather an escape route out of the profound pit of poverty. Increasing the Earned Income Tax Credit is thus more than simply providing financial assistance to households in need, but rather a way to protect our most disadvantaged citizen and their most fundamental human rights.
[1] “Donald J. Trump’s New Child Care Plan.” Accessed March 29, 2017. https://www.donaldjtrump.com/press-releases/fact-sheet-donald-j.-trumps-new-child-care-plan
[2] “Who Benefits from President Trump’s Child Care Proposals?” Tax Policy Center, February 27, 2017. http://www.taxpolicycenter.org/publications/who-benefits-president-trumps-child-care-proposals
[3] “The Earned Income Tax Credit and the Child Tax Credit: History, Purpose, Goals, and Effectiveness.” Economic Policy Institute. Accessed March 29, 2017. http://www.epi.org/publication/ib370-earned-income-tax-credit-and-the-child-tax-credit-history-purpose-goals-and-effectiveness/
[4] Sykes, Jennifer, Katrin Križ, Kathryn Edin, and Sarah Halpern-Meekin. “Dignity and Dreams: What the Earned Income Tax Credit (EITC) Means to Low-Income Families.” American Sociological Review 80, no. 2 (April 1, 2015): 243–67. doi:10.1177/0003122414551552.
[5] Internal Revenue Service. “Earned Income Tax Credit (EITC).” Accessed March 29, 2017. https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit
[6] Marr, Chuck, Chye-Ching Huang, Arloc Sherman, and Brendan Debot. “EITC and Child Tax Credit Promote Work, Reduce Poverty, and Support Children’s Development, Research Finds.” Center on Budget and Policy Priorities, June 26, 2012. http://www.cbpp.org/research/federal-tax/eitc-and-child-tax-credit-promote-work-reduce-poverty-and-support-childrens
[7] Weingarten, Elizabeth. “The Problem with the Earned Income Tax Credit,” April 8, 2012. https://www.newamerica.org/asset-building/the-ladder/the-problem-with-the-earned-income-tax-credit/
[8] Greenstein, Robert, John Wancheck, and Chuck Marr. “Reducing Overpayments in the Earned Income Tax Credit.” Center on Budget and Policy Priorities, April 30, 2013. http://www.cbpp.org/research/federal-tax/reducing-overpayments-in-the-earned-income-tax-credit
The opinions and views expressed through this publication are the opinions of the designated authors and do not reflect the opinions or views of the Penn Undergraduate Law Journal, our staff, or our clients.
