The Download of the Week is Why the EITC Doesn't Make Work Pay by Anne Alstott. Here is the abstract:
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Since 1975, the earned income tax credit (EITC) has transformed from a
small, obscure provision of the federal tax code into one of the
largest programs in the U.S. social welfare system. Today, the EITC
provides $47 billion in benefits each year to 24 million workers and
their families. Bill Clinton famously called the EITC “a cornerstone of
our effort to reform the welfare system and make work pay.” But a
closer look calls into question the claim that the EITC makes work pay.
U.S. law entrenches family poverty in the United States, making it
impossible for the EITC – or any other modest earnings subsidy – to
make meaningful reductions in poverty, even among workers. According to
realistic measures of social inclusion and economic well-being, the
EITC reduces poverty only modestly, and even the maximum credit falls
short of closing the gap between low-wage earnings and poverty. At the
same time, gaps in other social welfare programs leave low-income
workers vulnerable to the job disruptions that characterize low-wage
work – when the EITC provides no assistance at all. This symposium
paper highlights – and challenges – two assumptions that underlie
conventional praise for the EITC. First, analysts often adopt the
official poverty line as the metric for success in “making work pay,”
despite its inadequacy as a measure of economic distress and social
exclusion. Adopting a more realistic version of the poverty line
reveals how little the EITC accomplishes – or, put another way, how
ambitious a program would have to be to make work pay. Second,
discussions of the EITC typically focus on the situation of workers
while they hold jobs, ignoring the frequent spells of job disruption
due to unemployment, disability, and family needs that are common among
low-wage workers. This limited perspective may be appropriate for
technocratic discussions of EITC program design, because the EITC, like
any wage or earnings subsidy, is designed only to assist the employed.
It is, thus, a shortcoming of wage subsidies in general, and not the
EITC in particular, that gaps in the social safety net leave low-income
workers vulnerable to involuntary work disruption. But the contours of
complementary programs should inform claims about the success of the
EITC in “making work pay” – that is, in assuring a decent standard of
living to those willing to work, even if (like many low-income workers)
they do not succeed in working full-time, year-round.