My Two Cents

Earned income tax credit

Chris Farrell May 12, 2009

The earned-income tax credit is the country’s most successful and largest anti-poverty program for working families. For instance, the EITC is credited with increasing the labor force participation rate of single mothers with children following welfare reform. (You can learn more about welfare reform listening to this American RadioWorks documentary from 2006 by John Biewen.) And it lifts more children out of poverty than any other government program, according to research by economists Nada Eissa of Georgetown University and Hilary Hoynes of the University of California, Davis.

President Ronald Reagan got it right when he hailed the EITC as the “best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” But the EITC can be streamlined and made better. For instance, it’s a complicated credit, with numerous and often confusing eligibility requirements. It also could be made somewhat more generous.

One question dogging the EITC is whether the jobs taken by single mothers are “dead end” jobs or jobs with future earnings potential. That’s the question Molly Dahl and Jonathan Schwabish of the Congressional Budget Office and Thomas DeLeire of the Department of Population Health Services at the University of Wisconsin, Madison investigated in their April, 2009 paper, Stepping Stone or Dead End? The Effect of the EITC on Earnings Growth.

Their conclusion: “Our results suggest that once a single mother becomes employed, she will develop the skills needed to increase her earnings. The EITC encourages work among single mothers, and that work continues to pay off through future increases in earnings.”

I wonder how the single mothers with children that benefitted from the expansion of the EITC during the ’90s are doing now with the downturn?

We’re here to help you navigate this changed world and economy.

Our mission at Marketplace is to raise the economic intelligence of the country. It’s a tough task, but it’s never been more important.

In the past year, we’ve seen record unemployment, stimulus bills, and reddit users influencing the stock market. Marketplace helps you understand it all, will fact-based, approachable, and unbiased reporting.

Generous support from listeners and readers is what powers our nonprofit news—and your donation today will help provide this essential service. For just $5/month, you can sustain independent journalism that keeps you and thousands of others informed.