EITC Even Better for Children than We Thought

July 17, 2012 at 10:25 am

We previously showed that the Earned Income Tax Credit (EITC) for low-income workers lifts more children out of poverty than any other public program.  More recent research suggests that the income assistance it provides is even better for children — our nation’s future workforce — than we thought, helping them succeed both as students and, in adulthood, as workers.

Improving school performance. For children in low-income working families, research shows that earnings supplements like the EITC can be very beneficial in times of need.  As our recent paper explains, three separate teams of highly regarded researchers have found that young children in very low-income families do better in school if their families receive additional income from the EITC or (in some of the studies) similar work-based supports.  

Boosting children’s work hours and earnings in adulthood. The benefits of the EITC and other income-boosting measures appear to carry over into young children’s adulthood. Two studies show that young children in low-income families that receive the type of income support that the EITC offers are likely to work more and earn more as adults.

  • Raising family income through refundable tax credits (primarily the EITC) makes it more likely that children in the family will attend college and raises their earnings as adults, according to research by Raj Chetty and John N. Friedman of Harvard University and Jonah Rockoff of Columbia University.  The authors conclude that “a substantial fraction of the cost of tax credits may be offset by earnings gains in the long run.”
  • Children in low-income families that received an annual income boost of $3,000 (in 2005 dollars) between their prenatal year and fifth birthday earned an average of 17 percent more as adults, and worked 135 hours more annually, than similar children whose families didn’t receive the added income, according to research by Greg J. Duncan of the University of California (Irvine), Kathleen Ziol-Guest of Cornell University, and Ariel Kalil of the University of Chicago.

The additional 135 hours of work is nearly a third of the gap in adult work hours between children raised in poor families and children raised in families above twice the poverty line.

In short, the EITC boosts the work and earnings not only of single mothers, but also of their children.

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More About Indivar Dutta-Gupta

Indivar Dutta-Gupta

Indivar Dutta-Gupta joined the Center as Policy Advisor in January 2011. His work primarily focuses on federal budget and tax policies and cross-cutting low-income issues.

Full bio | Blog Archive | Research archive at CBPP.org

3 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. 1

    Obama’s “Getting Ahead” Tax Cuts in Lowest Brackets – What’s in it for those who work hard and earn an EITC?

    In a nutshell. Obama’s plan cuts taxes on the first dollars everyone earns. This includes the lowest income earners who received EITC. Plus, in hard economic times it puts more in their pockets WITHOUT making their employers pay more, like raising the minimum wage.

    It’s necessary. Every dime of taxes you pay on the first dollars you earn, delays the time you can stop scraping by and start to really save for home, health, education, and retirement.

    It’s simple. Whatever your income, with lower rates on the first dollars you earn, you have more to invest in yourself and your future.

    It works. At last, everyone gets a serious tax savings for a real and legitimate chance to get ahead and improve their fortunes.

    Not class warfare. A rising tide lifts all boats, including yachts! More in workers’ pockets means more capital, profits and investment returns.

    Not a handout. It is a ladder to opportunity that must be climbed – through personal responsibility – by people who work and want to move up or to find a way out.

    Everyone benefits. The net tax rate is cut for everyone. Whatever their total income.

    Fiscally prudent. The country can only afford a limited amount of tax cutting now. We must focus where cuts are most necessary today and show real benefits, like the EITC, long term.

  2. Kathy Higgons #
    2

    EITC can also be quite abused. Case in point – I’ve worked in the subsidized housing industry for 28 years. I’ve seen many, many cases where a family living in subsidized housing who have children but did not work thru the year and, therefore, will not file taxes allow another family who did work and will file taxes claim their children as dependents or for EITC. This can result in thousands of extra dollars being paid to the second family fraudulently, because the children being claimed by the second family did not reside in their household at all! The money is then split between the families. Although I personally have sent case after case to the IRS, as directed by the IRS, no action was taken. We are only a small housing agency. I can only imagine the numbers once you look at how much this must be occurring across the nation! EITC should be abolished and everyone should have to pay their fair share, no matter their income. Perhaps it would act as an incentive improve your job status or to avoid having children you can not afford to support.

  3. Dave Thomas #
    3

    An unsubstantiated correlation does not a fact make.



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