Building Assets, Building Futures: Does receiving the Earned Income Tax Credit (EITC) help poor single mothers build assets for the future?
The Earned Income Tax Credit (ETIC) is a refundable tax credit given to low-income workers in amounts that vary by marital status, number of children, and income level. It is considered one of the most successful anti-poverty tools in the United States. A large portion of those receiving the EITC are single mothers, many recently entering the labor force after moving off welfare. Using a sample of women ages 37-45 in 2002 from the National Longitudinal Survey of Youth 1979 (NLSY79), this study shows that in addition to helping move families out of poverty, the EITC also has a positive impact on asset-building for low-income mothers. For example, single mothers making less than $35,000 per year who took the EITC in 2001 had a 7 to 11 percentage point increase in the probability of initiating savings or owning a car or owning a home in 2004 over their peers who did not make an EITC claim in 2001. These results imply that even when wealth-building is defined in this narrow sense, low-income workers are able to use some of their EITC to promote economic stability. A broader definition of wealth-building behavior that included paying off credit card debt, buying durable goods like washing machines, and pre-paying rent would most likely demonstrate a greater propensity to set aside current benefits for future gain. Because lack of wealth is at least equally responsible for keeping poor families poor, this study shows that government programs that link the EITC to asset-building opportunities, such as Individual Development Accounts (IDA), have considerable promise.
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Iribarren, Maria Luisa (Georgetown University, 2015)The Earned Income Tax Credit (EITC) expansion in 2009 substantially expanded the benefit given to a family with three or more children compared to a family with two children, with one child, and with no children. Using ...