Tag Archives: earned income tax credit

A Counterintuitive Approach to Reducing Poverty

Can government successfully intervene to raise incomes and reduce poverty? It’s a heated but critical question. While social welfare programs, such as SNAP (food stamps) and Medicaid, help lift low-income families out of poverty, in some cases they can produce a disincentive to make more money–known as the “cliff effect“–in which a modest increase in income could mean an equal or greater decrease in welfare benefit. In other words, some families could be worse off financially if they accept a small raise at work.

This is obviously problematic, but what is the solution?

Future of Children author Gordon L. Berlin suggests expanding the Earned Income Tax Credit (EITC), which was created to increase work incentives among the poor by reducing the federal taxes they owe and refunding any leftover tax credit through yearly tax returns. For those filing taxes this year, the maximum EITC for a family with three children is approximately $6,000, while those without children can receive a maximum of approximately $500. As President Obama acknowledged in his 2014 State of the Union Address, “few [policies] are more effective at reducing inequality and helping families pull themselves up through hard work … but it doesn’t do enough for single workers who don’t have kids.”

Berlin’s policy recommendation addresses this concern. He argues for increasing the credit for all low-wage workers aged 21 to 54 who work full time–regardless of whether they have children or whether they are married, though the largest benefits would accrue to two-parent households in which both adults can work full-time. This policy would reduce poverty without distorting work incentives, as the earning supplement would progressively decrease with higher income. In effect, it could help transform a “cliff” into a steady slope of opportunity.

To learn more about this proposed policy, including how it could be paid for, see the Future of Children issue on The Next Generation of Anti-Poverty Strategies. We will return the topic of EITC expansion and how it can help children in our Spring 2014 Future of Children issue, “Helping Parents, Helping Children: Two-Generation Mechanisms.”

Recession Hard on Young Men — A Bad Problem Getting Worse

The Boston Globe reported on Friday, December 5, 2008 that men are being hit by the current recession in much larger numbers than women. A lot of this has to do with the fact that the industries where men dominate – manufacturing, construction, and investment services – are the ones losing jobs the fastest. According to the Globe, there are 1.1 million fewer men working in the U.S. than a year ago at this time, but there are 12,000 more women working. “Losing Jobs in Unequal Numbers,” page A1.

While cuts are across industries, highly educated men are much more likely to bounce back, while lower-educated men will fare the worst. Wages and employment for lower-educated men have been declining for the past 30 years, and this current recession is expected to make an already bad problem much worse. Both family income and family structure are affected as low income men are left unable to support families they start – leaving more children vulnerable in single-mother, poor households.
A recent Future of Children journal and policy brief addressed this issue, arguing that many of society’s ills – delinquency and crime, school dropout, unemployment and nonwork, nonmarital births, and poverty are all associated disproportionately with young men – and offering two quite different approaches to helping poor men and their children.
Gordon Berlin proposes a carrot approach in his article – giving men an incentive to work by extending the earned income tax credit to supplement the earnings of all adult low-wage fulltime workers, regardless of whether they have children or are married, and based on individual income rather than joint or family income. The potential result is a system that actually rewards marriage of two low-income working partners, and thus encourages formation of two-parent, two-worker households – a boon for poor children.
Lawrence Mead goes in a different direction in his article and proposes a stick approach to employing low-income men. In particular, he looks to the child support and criminal justice systems as potential partners in a “help with hassle” approach. Essentially men with unpaid child support judgments and parolees leaving prison would be told to settle any debts they have to their children and get a job – or be required to join a work program where they would be closely supervised and, particularly in the case of prisoners, offered workplace instruction. If they failed to participate, they would face prison.
Neither of these proposals is inexpensive, and both could very well meet with resistance. Therefore the two authors suggest that rather than implementing nationwide, each should be tested in large-scale demonstrations – preferably using random assignment design – to see if in fact these interventions in the lives of low-income men make a difference and have a beneficial impact on their children.