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Tax Policy toward Low-Income Families

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Listed:
  • Hoynes, Hilary
  • Rothstein, Jesse
Abstract
In this paper, we review the most prominent provision of the federal income tax code that targets low-income tax filers, the Earned Income Tax Credit (EITC), as well as the structurally similar Child Tax Credit (CTC). We frame the paper around what we see as the programs’ goals: distributional, promoting work, and limiting administrative and compliance costs. We review what is known about program impacts and distributional consequences under current law, drawing on simulations from the Tax Policy Center. We conclude that the EITC is quite successful in meeting its three goals. In contrast, most of the benefits of the CTC go to higher income households. In addition to analyzing current law, we assess possible reforms that would reach groups – for the EITC, those without children; for the CTC, those with very low earnings – who are largely missed under current policy.
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Suggested Citation

  • Hoynes, Hilary & Rothstein, Jesse, 2017. "Tax Policy toward Low-Income Families," Department of Economics, Working Paper Series qt7kb5b5dw, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    • Handle: RePEc:cdl:econwp:qt7kb5b5dw
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    References listed on IDEAS

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    1. Chris Herbst, 2011. "The Impact of the Earned Income Tax Credit on Marriage and Divorce: Evidence from Flow Data," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 30(1), pages 101-128, February.
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    18. repec:pri:cepsud:165rothstein is not listed on IDEAS
    19. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(3), pages 1039-1073.
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    24. Damon Jones, 2010. "Information, Preferences, and Public Benefit Participation: Experimental Evidence from the Advance EITC and 401(k) Savings," American Economic Journal: Applied Economics, American Economic Association, vol. 2(2), pages 147-163, April.
    25. Hilary W. Hoynes & Ankur J. Patel, 2015. "Effective Policy for Reducing Inequality? The Earned Income Tax Credit and the Distribution of Income," NBER Working Papers 21340, National Bureau of Economic Research, Inc.
    26. Ellwood, David T., 2000. "The Impact of the Earned Income Tax Credit and Social Policy Reforms on Work, Marriage, and Living Arrangements," National Tax Journal, National Tax Association;National Tax Journal, vol. 53(4), pages 1063-1106, December.
    27. Dayanand S. Manoli & Nicholas Turner, 2014. "Cash-on-Hand & College Enrollment: Evidence from Population Tax Data and Policy Nonlinearities," NBER Working Papers 19836, National Bureau of Economic Research, Inc.
    28. John Guyton & Dayanand S. Manoli & Brenda Schafer & Michael Sebastiani, 2016. "Reminders & Recidivism: Evidence from Tax Filing & EITC Participation among Low-Income Nonfilers," NBER Working Papers 21904, National Bureau of Economic Research, Inc.
    29. Saurabh Bhargava & Dayanand Manoli, 2015. "Psychological Frictions and the Incomplete Take-Up of Social Benefits: Evidence from an IRS Field Experiment," American Economic Review, American Economic Association, vol. 105(11), pages 3489-3529, November.
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    Citations

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    Cited by:

    1. Diane Whitmore Schanzenbach & Michael R. Strain, 2021. "Employment Effects of the Earned Income Tax Credit: Taking the Long View," Tax Policy and the Economy, University of Chicago Press, vol. 35(1), pages 87-129.
    2. Marianne Bitler & Hilary Hoynes & Elira Kuka, 2017. "Child Poverty, the Great Recession, and the Social Safety Net in the United States," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 36(2), pages 358-389, March.
    3. Luis Ayala & Milagros Paniagua, 2019. "The impact of tax benefits on female labor supply and income distribution in Spain," Review of Economics of the Household, Springer, vol. 17(3), pages 1025-1048, September.
    4. Jacob E. Bastian, 2024. "The EITC in rural and economically distressed areas: More bang per buck?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 31(1), pages 136-159, February.
    5. Hilary Hoynes & Mark Stabile, 2019. "How Do the US and Canadian Social Safety Nets Compare for Women and Children?," Journal of Labor Economics, University of Chicago Press, vol. 37(S2), pages 253-288.
    6. Michael Christl & Silvia De Poli & Janos Varga, 2022. "Reducing the income tax burden for households with children: an assessment of the child tax credit reform in Austria," Fiscal Studies, John Wiley & Sons, vol. 43(2), pages 151-177, June.
    7. Jonathan Meer & Joshua Witter, 2022. "Effects of the Earned Income Tax Credit for Childless Adults: A Regression Discontinuity Approach," NBER Chapters, in: Tax Policy and the Economy, Volume 37, pages 175-198, National Bureau of Economic Research, Inc.
    8. Hilary W. Hoynes & Jesse Rothstein, 2019. "Universal Basic Income in the US and Advanced Countries," NBER Working Papers 25538, National Bureau of Economic Research, Inc.
    9. Bastian, Jacob E. & Black, Dan A., 2024. "Relaxing financial constraints with tax credits and migrating out of rural and distressed America," Journal of Public Economics, Elsevier, vol. 234(C).
    10. Jorge Rodriguez, 2017. "Understanding the Effects of Income and Child Care Subsidies on Children's Academic Achievement," 2017 Papers pro1077, Job Market Papers.
    11. Bastian, Jacob E. & Jones, Maggie R., 2021. "Do EITC expansions pay for themselves? Effects on tax revenue and government transfers," Journal of Public Economics, Elsevier, vol. 196(C).
    12. Harkness, Susan, 2022. "The accumulation of disadvantage: how motherhood and relationship breakdown influence married and single mothers’ economic outcomes," ISER Working Paper Series 2022-03, Institute for Social and Economic Research.
    13. Iselin, John & Mackay, Taylor & Unrath, Matthew, 2023. "Measuring take-up of the California EITC with state administrative data," Journal of Public Economics, Elsevier, vol. 227(C).

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    More about this item

    JEL classification:

    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
    • I38 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - Government Programs; Provision and Effects of Welfare Programs

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