Policy Documents

Case Study #7: The Earned Income Tax Credit

Michael Schuyler, and Stephen J. Entin –
August 7, 2013

In this case study, the authors write that the Earned Income Tax Credit (EITC) was introduced into the tax system in 1975 as a small tax subsidy for the working poor with children. It has been expanded several times and now includes benefits for low-income earners without children, with one child, with two children, and with three or more children. The credit is refundable; after the credit has reduced a filer’s tax liability to zero, the filer is eligible to receive the remainder as a check from the government. The refundable part is technically classified as an outlay in federal budget documents, but people determine the entire credit on their tax forms. When the Tax Foundation’s Taxes and Growth model is run under the conventional static revenue estimation assumption that all macroeconomic aggregates are fixed, it appears that eliminating the EITC would lift federal revenue by $56 billion.