Tax Policy Toward Low-Income Families
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.
We are very grateful to staff at the Tax Policy Center, and particularly Elaine Maag for providing us with simulations of the Urban Brookings Tax Policy Center Microsimulation model. We thank Claire Montialoux, Audrey Tiew and Darian Woods for excellent research assistance. Portions of this paper draw heavily on Nichols and Rothstein (2015) and Hoynes and Patel (2015). We are grateful for helpful comments to Alan Auerbach, Louis Kaplow, Jim Hines, Len Berman, Diane Schanzenbach, Bob Greenstein, Chye-Ching Huang, and participants in the “Economics of Tax Policy” conference held in Washington, DC on December 3-4, 2015. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.