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Expanding the EITC Benefits Children — and the Economy

We’ve highlighted research showing that the Earned Income Tax Credit (EITC) helps children in low- and moderate-income working families both now and in adulthood, which in turn benefits society at large.  Two new studies reinforce this point.

First, take school performance.  Economists Gordon Dahl and Lance Lochner find in a recent paper that a rise in income through the EITC improves children’s math and reading test scores.  The gains are biggest for the poorest children.  This new research is consistent with earlier findings that we discussed in our recent paper.

Second, consider what happens to these kids when they grow up and enter the working world.  The gains in school performance resulting from the EITC’s income boost appear to improve children’s earning power as adults.  That’s good not just for them, but for the overall economy — and for tax revenues.  In fact, Alexander Gelber of the Wharton Business School and Matthew Weinzierl of the Harvard Business School find in a new study that the tax system would better help low-income children climb the economic ladder, and therefore would raise revenue more effectively, if policymakers expanded the EITC.

This timely new research underscores the benefits of building on the EITC’s success, not letting recent EITC improvements expire at the end of the year.

Chuck Marr
Vicepresidente de Política Tributaria Federal