eight - The Earned Income Tax Credit as an anti-poverty programme: palliative or cure?

Summary

Introduction

The Earned Income Tax Credit (EITC), a federal rebate provision of the US tax code, is heralded as that nation's largest anti-poverty programme for low-income, working families (Berube, 2006; Holt, 2006). Notwithstanding more than 35 years of EITC implementation, poverty still plagues American families and children. While the EITC has been lauded for increasing labour force participation, particularly for lone mothers, and for lifting working families up to the federal poverty level (Greenstein, 2005; Acs and Toder, 2007), the short-term cash benefits of the EITC do not appear to support long-term economic gains for poor working families (Rainwater and Smeeding, 2003; Dowd and Horowitz, 2011). Additionally, the constraints of many low-wage jobs restrict the time and financial resources that parents can invest in promoting the development and success of their children (Dodson and Albelda, 2012). These limitations of the EITC as a ‘making work pay’ policy may have implications for workfare policies in other industrialised nations, such as the new Universal Credit in the UK.

The EITC is recognised as an integral part of the new ‘workfare’ state by incentivising work for parents with limited skills and education, but less well known is the EITC's prominent role as a wage supplement that reaches working households below and above the poverty line. The EITC's function to prop up low wages in response to international economic competition challenges conventional thinking about its explicit purpose as an anti-poverty programme. While the EITC provides much-needed income support to working families, income alone, as a subsidy for chronic low wages, is not enough to prevent many children of programme beneficiaries from experiencing deprivation that is likely to limit their life chances and adult earning potential (Heckman and Masterov, 2007), thereby reproducing poverty in the next generation (Sachs, 2011). Additionally, there is a growing consensus that poverty is not defined solely by income; it is more aptly described by a constellation of deprivation factors (Wilson, 1987). If poverty is to be surmounted in future generations, the federal anti-poverty agenda will need to blend income supports for parents with other forms of social assistance, and promote policies that build the human capital of their children.