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The Federal Earned Income Tax Credit Draws Praise Across the Political Spectrum

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Complete report

The federal Earned Income Tax Credit, a tax credit for low- and moderate-income working families, has been widely hailed for its success in increasing work and lowering welfare receipt, reducing poverty, and making the tax code fairer.

President Ronald Reagan called the EITC “the best antipoverty, the best pro-family, the best job creation measure to come out of Congress.”* Similarly, Mark Everson, who served as IRS commissioner under President George W. Bush, called the EITC “one of the government’s most successful anti-poverty programs.”**

The research bears them out. In a paper issued several years ago, Janet Holtzblatt, then an official in the Treasury’s Office of Tax Analysis and a widely recognized expert on the EITC, reviewed the research on the EITC’s impact on work and poverty. Holtzblatt reported:

Several recent studies have found that the EITC encourages work, as well as alleviates poverty…. Grogger (2003) concludes that the EITC may be the “single most important” policy parameter for explaining recent declines in welfare and increases in work and earnings among female-headed families. Meyer and Rosenbaum (2001) found that more than 60 percent of a nine percentage point increase in the employment of single mothers between 1984 and 1986 was due to expansions of the EITC. Dickert, Houser, and Scholz (1995) estimated that expansions of the EITC between 1993 and 1996 would induce more than half a million families to move from welfare to work. Eissa and Liebman (1996) find that the EITC expansion in the Tax Reform Act of 1986 significantly increased labor force participation among single mothers, especially less educated women.***

Similarly, in the mid-1990s, at a time when Congress was considering proposals to cut the EITC, two of the nation’s leading conservative economists rallied to the EITC’s defense. In a 1996 Wall Street Journal column, conservative Harvard economist and then Journal contributing editor Robert J. Barro observed: “There exists a serious program in the form of the earned income tax credit that actually helps the working poor in a way that promotes work and discourages welfare. The EITC was originally a Republican idea — started by the Ford administration in 1975 and expanded by the Reagan administration during the glorious 1980s and the Bush administration in 1990. . . . Mr. Clinton’s support is not sufficient reason to regard the program as mistaken. In fact, it has a well conceived structure that ought to be retained and perhaps expanded.”****

Similarly, in a 1996 Business Week article, Nobel laureate Gary S. Becker praised the EITC for aiding poor families without reducing employment, discouraging work, or increasing reliance on public assistance. Becker wrote that the EITC “rewards rather than penalizes poor families with working members. . . . Empirical studies confirm the prediction of economic theory that the EITC increases the labor force participation and employment of people with low wages because they need to work in order to receive this credit.” Becker also applauded the EITC for being “fully available to families with both parents present, even where only one works and the other cares for their children [i.e., for being available to low-income working families with stay-at-home mothers].”*****

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* The Chicago Tribune, October 23, 1986.

** Testimony before the Senate Homeland Security and Governmental Affairs Committee, March 9, 2006.

*** Janet Holtzblatt, “Trade-offs Between Targeting and Simplicity: Lessons from the U.S. and British Experiences with Refundable Tax Credits,” 2004.

**** Robert J. Barro, “Workfare Still Beats Welfare,” Wall Street Journal, May 21, 1996.

***** Gary S. Becker, “How to End Welfare ‘As We Know It’ — Fast,” Business Week, June 3, 1996.

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