TAX POLICY AND INTERGENERATIONAL POVERTY: THE RELATIONSHIP BETWEEN THE EARNED INCOME TAX CREDIT AND YOUNG ADULT EARNINGS
Dancy, Kimberly Beth
Bednarzik, Robert W
The Earned Income Tax Credit (EITC) is a refundable tax credit, originally developed in 1975, which functions as a wage subsidy for low-income families and single adults. The EITC has demonstrated effects on familial resources and parental behaviors (Moffit, 1983; Eissa and Liebman, 1996; Dahl et al, 2009), as well as limited evidence of changes to neighborhood dynamics (Spencer, 2007). Because of this, there is reason to believe the net impact on intergenerational poverty, a thoroughly documented yet poorly understood phenomenon, will be positive (Haveman and Wolfe, 1995; Concoran, 1996). Analyzing these relationships is challenging, due to a litany of variables that are difficult or impossible to measure, and the high complexity of neighborhood factors, family dynamics and personal characteristics that shape achievement. This analysis indicates a small, but statistically significant relationship between earnings in young adulthood and parental EITC receipt, when measured in terms of the average annual tax credit, and the number of years in which a positive credit was received. The results indicate a small negative relationship between average EITC benefit and future earnings, while the number of years of the tax credit was positively correlated with young adult success. These findings underscore the beneficial aspects of the project, and provide justification for improving the program through increases to eligibility and enrollment, as well as making other tax credits fully refundable in order to be useful among the very poor.
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