BEYOND THE NUMBERS
Tax Foundation Gets It Backwards: EITC Boosts Employment and Work Effort
[T]here is overwhelming evidence the EITC encourages work among single mothers but little evidence that eligible-working women adjust their hours of work in response to the EITC. Perhaps most striking about these findings is their consistency across different empirical methods […] as well as different EITC expansions.Research does find evidence that some two-earner families with children in the “phase out” range for the EITC may reduce their hours worked modestly. Many analysts believe that, in effect, the EITC is making it possible for one spouse to spend more time raising children (and potentially reducing child care costs) while the other works outside the home. Based on its flawed finding, the Tax Foundation says eliminating the EITC would free up enough revenue to pay for a 5.7 percent across-the-board personal income tax rate cut. (This idea stands in stark contrast to some conservatives’ suggestion that the credit actually be expanded.) Such a policy would have damaging consequences, for both working-poor families and the economy: Decreased employment. Repealing the EITC would actually decrease employment, contrary to the Tax Foundation’s assumptions. Careful studies have documented that EITC expansions in the 1990s moved 500,000 people from welfare to work and that those expansions were at least as important as welfare reform in boosting employment among single mothers. Millions of working people thrown into poverty. In 2011, the EITC, coupled with the refundable Child Tax Credit, lifted 9.4 million people — including 4.9 million children — out of poverty, using the Supplemental Poverty Measure. The harsh repeal suggested by the Tax Foundation would push millions of low-income working Americans into poverty. Another tax cut for the wealthiest Americans, at the expense of low-income families. Across-the-board cuts in tax rates are regressive, disproportionately benefitting people at the top of the income scale, as we have explained. The rate cut suggested by the Tax Foundation and the repeal of the EITC would result in a large transfer from low-income families who often struggle to make ends meet to wealthier households, exacerbating already-wide income inequality.