MDRC in the News

This Simple Tax Policy Change Could Boost The Cash, Credit, And Well-Being Of The Working Poor

Fast Company

10/2017

The Earned Income Tax Credit (EITC) is widely considered the federal government’s most effective anti-poverty program. Sending tax refund checks to millions of low-income Americans every year, it helps people keep more of what they earn, and helps people stay working (and not claiming other benefits). In the 2015 tax year, more than 26 million families and individuals received the EITC, with an average payout of about $3,000 (the maximum amount available is about $5,500). Unusually, the EITC also has broad bipartisan support. Everyone from Paul Ryan to Barack Obama to Ro Khanna, a liberal Democrat congressman from Northern California, has argued for expanding the program both in the amount of credit-dollars available and in the number of people who can claim it. Being an effective tax cut, it gets endorsement from Republicans, who love tax cuts; being anti-poverty, it gets support from Democrats, who tend to want to help the nation’s poorest…..

…..MDRC, a nonprofit social policy research firm, recently announced the results from the first two years in New York, and it says the impact was largely positive. After-bonus incomes went up (that is, above the amount people get in EITC) and work rates increased by 3.5% in the first year (compared to a control group). Moreover, there’s no evidence the program was a disincentive to work. That’s despite the oft-repeated idea that giving people government money naturally leads them to be lazy.

“The [EITC] has proven to be a very effective anti-poverty program for families with children,” says Cynthia Miller, an economist at MDRC who helped evaluate the first stage of the experiment, in an interview. “Given these interim findings that it increases income and employment rates, and that it doesn’t lead to any work reductions that some people are concerned about, I think it’s very encouraging.”

MDRC still needs to evaluate the third year of New York payments from the current tax year. Plus there’s a whole separate, identical trial taking place in Atlanta. So we won’t have full results until 2020. But if the results from the initial phase are replicated in the other years, the experiment could provide strong evidence for the benefits of expanding EITC to groups that are currently under-covered or not covered at all.

“Providing the money through the EITC gives people more of a sense of social inclusion because they’re getting a tax refund like other Americans. It’s not considered welfare, so that’s a positive,” Miller adds…..

Full Article