The U.S. Earned Income Tax Credit: a primer

Bruce D. Meyer from Chicago University's Harris School of Public Policy Studies recently prepared a primer on the Earned Income Tax Credit for a conference organized by the Economic Council of Sweden. The paper, The U.S. Earned Income Tax Credit, its Effects, and Possible Reforms (PDF), is a useful primer on the subject. Here's what it covers:

In this paper, I first summarize how the U.S. Earned Income Tax Credit (EITC) operates and describe the characteristics of recipients. I then discuss empirical work on the effects of the EITC on poverty and income distribution, and its effects on labor supply. Next, I discuss a few policy concerns about the EITC: possible negative effects on hours of work and marriage, and problems of compliance with the tax system. I then briefly discuss some possible reforms to the structure of the current EITC.

And this is how Professor Meyer concludes:

In summary, the evidence indicates that the income distribution features of the EITC are quite good. It targets resources at those below the poverty line, particularly families with children. The empirical evidence on labor supply and marriage indicates that the incentives of the EITC are remarkably favorable given the resources transferred. However, there are still substantial opportunities for reform along several dimensions.

The reforms mooted include modifications to the tax schedule to reduce marriage penalties, simplifying eligibility criteria for the credit, and providing a more generous credit for single childless individuals or non-custodial fathers.

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