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Essay Subject: Advantages & disadvantages of EITC as way to reduce income inequality, impact on beneficiaries & incentive to work.... More...

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Paper Abstract: Advantages & disadvantages of EITC as way to reduce income inequality, impact on beneficiaries & incentive to work. Paper Introduction: THE EARNED INCOME TAX CREDIT: AN ANALYSIS Introduction This research examines the Earned Income Tax Credit (EITC). The overall objective of this examination is to assess the advantages and disadvantages of the EITC as a way of reducing income inequality within the United States. In this research, this overall objective is addressed through focusing on the effects of the EITC on (1) the levels of disposable money income of beneficiary families and (2) the incentives of beneficiary families to work. EITC: Description and Objectives The EITC was enacted in 1975 to “offset the impact of Social Security and Medicare taxes on low-income individuals and to encourage them to work instead of relying on welfare benefits” Text of the Paper: The entire text of the paper is shown below. However, the text is somewhat scrambled. We want to give you as much information as we possibly can about our papers and essays, but we cannot give them away for free. In the text below you will find that while disordered, many of the phrases are essentially intact. From this text you will be able to get a solid sense of the writing style, the concepts addressed, and the sources used in the research paper. for each additional dollar of earnings. Of this amount, $18 billion isattributable to the two most recent tax bills. Dickert, S., Houser, S., & Scholz, J. A principal objective of the 1993 expansion of the EITC was to "liftthe working poor out of poverty. "The structure of the credit includes an up-slope, a plateau and adown-slope. Before the marriage each could claim a $3,11 credit, but togetherthey could claim just one, much smaller credit. In the mid-198 s, the total budgetary cost of the EITC was $2 billion,with 7 million families receiving benefits (Browning, 1995, p. (1994, September).Promoting work through the EITC. Effects on the Incentive to Work With respect to the effect of the EITC on the incentive to work, thecharacter of the effect "will differ depending on whether a family's incomeand earnings place it in the phase-in range, the plateau range, or thephase-out range. For families with incomes close to the breakeven income, the size of thecredit is very small in relation to the family's total income. Targeting these resourcesto the lowest-income families has an economic cost as well. The principal reason for this occurrence "has been thesteady erosion of wages for low-paid work" (A slap, 1995, p. ... elasticities ... L. As a consequence,the EITC is an alternative to other transfer programs that arecharacterized by a reduction in benefits for each additional dollar ofearnings. Effects on Disposable Money Income From 1977 to 1993, the poverty rate for working families with childrenin the United States increased from 7.7 percent to 11.4 percent (A slap,1995, p. At $26, for a family with two children, for example, the credit is $21 , or lessthan one percent of gross income. At $26, , for example, there is a 21percent reduction in the net wage rate ..., and that is the same percentagereduction as for all families in the phase-out range" (Browning, 1995, p.27). 592). But the expansionof the EITC has been expensive. National TaxJournal, 47(1), 63-87. (1994, September). A worker who works 4 hours a week at the minimum wage andsupports a family of four will have combined cash wages, food stamps, andEITC benefit approximately equal to the poverty line" (Browning, 1995, p.25). A slap in the face for the working poor. As an example, "if a low-wage woman with two childrenmarries a low-wage man with two children, the marriage penalty can exceed$5, . Furthermore, the income and substitution effects ondisposable money income both imply increases in disposable income ..., sothere is virtually no possibility of the EITC producing a reduction inmoney income" (Browning, 1995, p. 23). For low-income families, the EITC "makes work pay in two ways. Although the net effect can, intheory, go either way, ... With respect to low income families generallyand upper middle and higher income families, however, the EITC has littleeffect on income inequality. Economist,336(7922), 23-24 Browning, E. Originally,a family could receive no more than $4 under the plan. Conclusion Based on the findings of this examination, one may conclude that theEITC is successful in both raising the disposable money income level ofbeneficiary families and creating an incentive for such families to work.In each case, the benefits are greater for those families with the lowestannual incomes. In this research, this overall objective is addressedthrough focusing on the effects of the EITC on (1) the levels of disposablemoney income of beneficiary families and (2) the incentives of beneficiaryfamilies to work. 23). Inthe phase-in range, the EITC acts to increase the net wage rate. EITC: Description and Objectives The EITC was enacted in 1975 to "offset the impact of Social Securityand Medicare taxes on low-income individuals and to encourage them to workinstead of relying on welfare benefits" (Helping, 1994, p. 4). K. One estimate is that "approximately half of total EITC paymentswill go to households with incomes above their poverty lines when the 1993reform is fully" effective (Scholz, 1994, p. References Alstott, A. (1995, 28 August). As benefitsare phased out, the marginal tax rates for families of modest meansincrease. For all families eligible for the EITC program,the 1993 changes "increased the average return to work. With respect to disposable money income, static theory may be appliedto predict that "it is more likely for disposable money income to bereduced the closer a family's income is to the breakeven level of the EITC. 36). The earned income tax credit andsome fundamental institutional dilemmas of tax-transfer integration.National Tax Journal, 47(3)6 9-619. 23). 23). In contrast, the substitution effect (or,more precisely, the percentage change in the net wage rate that determinesthe size of the substitution effect) does not become smaller as income iscloser to the breakeven level. 23-24). Forman, J. Insight on the News, 11(33)23-24 Help for the working poor. B. 591). (1994, March). "Thus,labor supply can be expected to decline, but disposable income willincrease" (Browning, 1995, p. (1994, January). State Legislatures, 2 (1),4. (1995, 8 July). 4). ... Use tax credit as an incentive formarriage. Both a married couplewith two children and a single parent with two children can claim an earned-income credit of up to $3,11 " (Forman, 1995, pp. With respect to families below theofficial poverty line and families somewhat above the line, the EITC doesreduce income inequality. Holtzblatt, J., McCubbin, J., & Gillette, R. K. NationalTax Journal, 47(3)621-638. THE EARNED INCOME TAX CREDIT: AN ANALYSIS Introduction This research examines the Earned Income Tax Credit (EITC). Moreover, the credit amount initiallyincreases ... The EITC significantly increases the marginal return to work forthose with tangential ties to the workforce: those who do not work at all,as well as those who work less than full-time at minimum-wage jobsthroughout the year" (Holtzblatt, McCubbin, & Gillette, 1994, p. The effects of the EITC in the phase-in and plateau ranges aredifferent from those in the phase-out range (Browning, 1995, p. National Tax Journal, 47(3), 591-6 7. The EITCis designed to help such families by providing a refundable tax credit forevery dollar earned up to a specified amount. 24). The 1993 changes to the EITC program increased payments to low-incomeworkers by a substantial amount; however, to "maintain desirableincentives, EITC payments will be made to taxpayers with incomes up to$27, . (1995, March). National Tax Journal, 48(1), 23-43. K. Thus, the EITC is not tightly targeted on the poor" (Dickert,Houser, & Scholz, 1994, p. 36). The earned income tax credit:Participation, compliance, and antipoverty effectiveness. The EITC, however, can result in so-called marriage penalties (Forman,1995, p. Taxes andthe poor: A microsimulation study of implicit and explicit taxes. For families with very low-incomes, the 1993 changes to the EITCprogram increased the marginal return to work (Holtzblatt, McCubbin, &Gillette, 1994, p. Scholz, J. The EITC is anearnings subsidy rather than a guaranteed minimum income, which largelydifferentiates the EITC from the concept of a negative income tax (Alstott,1994, p. Effects of the earned income tax crediton income and welfare. The EITC functions as an earnings subsidy with a negative marginal taxrate of 4 percent for those families with annual earnings "below $8,425,and then is analogous to a lump sum transfer for those with earnings in theplateau range. 23).Budgetary costs are expected to reach about $25 billion by the late-199 s-a12-fold increase over approximately 15 years, with 22 million familiesreceiving benefits. In the plateau range, there is onlyan income effect, as the EITC functions as a lump sum transfer. This growth is "primarily a consequence of expansionsof the EITC enacted" in 199 during the Bush Administration and in 1993during the Clinton Administration (Browning, 1995, p. By the end of the decade, low-incomefamilies will receive over $3 billion in credits a year, or severalbillion dollars more than the amounts projected for food stamps or Aid toFamilies with Dependent Children. Between $11, and $27, , the EITC operates like anegative income tax [NIT] with a breakeven income of $27, and a marginaltax rate of 21 percent" (Browning, 1995, p. imply that labor supply willincrease. 26). 63). Thisaction "produces a substitution effect favorable to work effort and anincome effect that reduces work effort. In 1993, 8 percent of EITC refunds went to families with annualincomes above $1 , , and 24 percent to families with incomes above$2 , . Thus, the income effect of the EITC thattends to increase disposable income becomes smaller the closer the family'sincome to the breakeven income. 6 9). 592). It then remainsconstant until the family's earnings hit $11,6 , from which point itgradually declines to zero" as earnings reach $27, (A slap, 1995, p.24). 36). Unlikeany other cash assistance program for low-income families, the EITCrequires recipients to work. (1994, September). The program hasbeen revised, and the General Accounting Office predicts an average creditof slightly more than $1, (Helping, 1994, p. The EITC is a refundable taxcredit applied to the federal individual income tax (Browning, 1995, p.24). For workers with incomes slightly above the poverty threshold,the marginal return to work is lower as a consequence of the EITC"(Holtzblatt, McCubbin, & Gillette, 1994, p. For a family with two or more children, the credit reaches the$3,5 maximum when the family's income is $8,9 . While some critics of the EITC fault this latter outcome,for the EITC to attain its stated objectives, it is preferable that thegreatest benefits be provided at the early stages of program participation,as opposed to the latter stages. For those in the phase-in range, the EITC acts like awage rate increase and therefore may stimulate labor supply, while forthose in the phase-out range it acts like an NIT and would be expected toreduce labor supply" (Browning, 1995, p. 625). To a limited degree, this wasaccomplished. Theoverall objective of this examination is to assess the advantages anddisadvantages of the EITC as a way of reducing income inequality within theUnited States. The EITCrepresents a "move away from the minimum wage and from direct publicassistance as a means of helping the working poor" (A slap, 1995, p. 24). If this paper is not what you are looking for, you can search again: Search for: or Click here to request an essay written just for you.