The best anti-poverty program ever?

I’ll nominate the Earned Income Tax Credit as one of our government’s best policies:

…the EITC is an honest and legal federal anti-poverty program that paid out nearly $28 billion to more than 16 million claimants in 2002.

The EITC is not a safety net program. Its benefits are only available to persons who have worked and received earnings during a given tax year…Over the last 28 years, the EITC has grown to become the largest federal cash or near-cash assistance program directed at low-income families–with outlays far exceeding Temporary Assistance for Needy Families (TANF) and the food stamps program.

Here are some key advantages:

First, the EITC significantly increases the fiscal resources available to working poor families. The program rewards labor earnings with a 40 percent match up to the first $10,000 in earnings (see figure 2). In many cases, EITC benefits are enough to raise a family above the poverty level. Second, the EITC encourages people to choose work over welfare. The program has built-in work incentives, especially at the lowest income levels, which encourage families to attain self-sufficiency. Some studies have shown that the increased availability of the EITC and more generous benefits helped contribute to the decline in welfare recipients after passage of the 1996 welfare reform act (accounting for as much as 20–30 percent of the decline in caseloads).

Note also that EITC offsets the impact of Social Security taxes on low-income individuals; otherwise those individuals would face very high marginal tax rates. Furthermore I’m strongly of the mind that people are happier when they are working, even if their jobs aren’t always fun.

The program is not without its blemishes. These involve a thirty percent error rate (relatively high, compared to other welfare programs), and overpayments of at least $9 billion a year. That is why the IRS invests so much energy auditing people with low incomes.

Still, it is rare when our government gets something so right. So let’s offer our plaudits for the day, before returning to the more frequent instances of government failure. Here is a good article on EITC, which explains its numerous virtues.


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