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1 Robert Bellafiore, The Earned Income Tax Credit: A Primer 1 (2019)

handle is hein.taxfoundation/eitcpm0001 and id is 1 raw text is: FISCAL FACT No. 654 May 2019 The Tax Foundation is the nation's leading independent tax policy research organization. Since 1937, our research, analysis, and experts have informed smarter tax policy at the federal, state, local, and global levels. We are a 501(c)(3) nonprofit organization. ©2019 Tax Foundation Distributed under Creative Commons CC BY NC 4.0 Editor, Rachel Shuster Designer, Dan Carvajal Tax Foundation 1325 G Street, NW, Suite 950 Washington, DC 20005 202.464.6200 The Earned Income Tax Credit: A Primer Robert Bellafiore* Policy Analyst Key Findings The Earned Income Tax Credit (EITC) is a refundable tax credit targeted at low-income workers. The majority of benefits accrue to people with an adjusted gross income (AGI) under $30,000, and about a third of benefits accrue to people with an AGI under $15,000. It has three phases. In the phase-in, each added dollar of earned income receives a matching credit, lowering a worker's implicit marginal tax rate. In the plateau, additional income has no effect on the credit's size or implicit marginal tax rate. In the phaseout, extra income reduces the credit, raising the implicit marginal tax rate. The EITC is well-targeted towards low-income workers, reducing poverty and counteracting instances of regressivity in the tax code. It also encourages work participation among certain groups. However, the EITC has complicated eligibility rules, has a consistently high error rate, can create negative economic incentives for workers, penalizes workers for marrying, and creates disparity between workers with and without children. Options to reform the EITC include reducing its complexity, especially through simpler eligibility requirements; eliminating the marriage penalty; and expanding the credit's value for childless workers, among others. Policymakers should consider the EITC's trade-offs when evaluating proposals to expand or reform the credit. The author would like to thank Madison Mauro for her contributions. taxfoundation.org

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