Lockean

     Trying to define what the overarching goals of public assistance should be and how to achieve these goals has been under great debate for years. Most often the argument surrounds what is best for the individual while trying to maintain what is best for society. The EITC (Earned Income Tax Credit) accomplishes both of these goals by offering the individual increased well-being and autonomy while ensuring that public expenditures and socioeconomic inequalities are reduced.

     Historically, the EITC as a poverty program started as a “work bonus” for low income working families in the mid 70’s but was later expanded in the 90’s (Nelson lecture Oct 5). It incentivized work by providing a tax credit based on a family’s earned income which was given through their tax return. The credit has remained fully refundable, meaning that families can use it to offset federal taxes owed or, if no taxes are owed, receive the credit in the form of a refund. The EITC has remained popular as an acceptable alternative to raising the minimum wage with both liberals and conservatives. Further, this bipartisan popularity has made it easy to implement and expand while insulating the program from being cut during heated debates over social programs and related expenses (Nelson 2009).

     Politically, the debate over public assistance often encompasses the idea that social programs are expensive and therefore should ensure limited dependence on such programs and encourage self-reliance. However, the broader scope and definition of self-reliance must be taken into consideration. Autonomy by definition is self-reliance and an individual’s “well being” is most certainly intertwined with autonomy. Yet, the political definition of autonomy often does not include the option or freedom of individual choice, only the idea that individuals should attain “freedom” from social programs through government mandates and guidelines. Political discussion rarely covers concern over individual well-being. Of course the definition of “well being” can be debated, but for simplification of argument should be attached to an individuals quality of life. Amartya Sen’s Capability Perspective says that the ability to meet basic needs such as food, clothing and shelter in a socially acceptable manner as well as being mentally and physically healthy, having social acceptance and the opportunity to engage in social activities all encompass the idea of well being. Further, one’s freedom and ability to chose the path by which these goals or basic needs are met and achieve well being is crucial as all individuals have varying basic needs and can achieve these needs in different ways (Nelson 2009, also Sen 1997).

     The EITC supports an individual’s well being through improved mental health and autonomy by reducing the shame or embarrassment of being dependent on public assistance as well as removing the stigma attached to this dependency (Nelson 2009). Home visits often put recipients in the position of having to justify purchases as a caseworker will sometimes question frugal purchases as neglectful or more expensive purchases as indulgent (Eitzen et al 2009 p 155). The requirement of having to visit a welfare office or suffer through the home visits of a caseworker in order to receive benefits is absent with the EITC. Further, the freedom to choose what is necessary or acceptable such as buying a new refrigerator, going to the dentist or taking a small vacation via a tax rebate is not up for debate because the tax credit is relatively anonymous. This anonymity enables these purchases, improving participation in social activities and thus increasing the opportunity for social acceptance thereby enhancing well-being.

     It has been proven that health and SES (Socioeconomic Status) is directly linked. People that report living in poverty also report being less healthy than those not living in poverty (i.e. better SES equates to better health (Nelson 2009). Thus, the ability to obtain essential goods and improving SES is a major determinant on both physical and mental health. It has been shown that the EITC makes it more feasible to obtain essential goods such as food, clothing and shelter that are considered minimally necessary. Further, approximately “thirty-six percent of EITC payments directly reduce the poverty gap” (Hotz 2000 p. 28). One study found that the EITC had a direct and positive effect on the health of EITC recipients. The study, “The Impact of The Earned Income Tax Credit on Infant Mortality” found that “the economic advantages from the EITC program are substantial enough to improve health conditions for people whose employment earnings fall below the Federal poverty level” (Arno 2003). Neither study took into account the possibility of employer paid health insurance benefits, which would continue to improve the health of EITC recipients (probably due to the fact that most of the working poor are not provided health insurance benefits).

     It is difficult to argue against the fact that the EITC helps provide for the well-being and autonomy of its recipients. However, some argue these specific benefits are attractive enough to open the door to fraud and moral hazards and getting benefits are easily manipulated due to the anonymity factor of the program. This misguided argument has been disproven through research done by the Department of the Treasury Office of Tax Analysis in 1999. While proof exists that EITC recipients have misreported filing statuses, number of children, family characteristics, etc. there is evidence that this is not due to the benefits received under the EITC but rather common compliance issues when filing taxes through a complicated tax code (McCubbin 1999 p. 22). The research has shown that most EITC recipients pay a third party for tax preparation services to file taxes questioning the notion that purposeful fraud by recipients is rampant. If anything, EITC participants rely on the tax preparer for advice on how to file.  Thus, the question to be asked is not whether fraud is occurring by or on behalf of the EITC recipient but rather if the tax preparer is trained well enough in the complicated and ever changing tax code to be preparing taxes for others.

     Others argue that one of the unintended consequences of the EITC is a change in individual work behaviors as it relates to the “phase out” limits of the EITC. Under the phase out guidelines, a recipient’s benefit increases up to a certain limit and then starts to decline once the phase out limit is reached. The argument has been that EITC recipients reduce work hours the closer they get to this phase out limit. While it is true that the EITC has changed behavior, it has not changed in the manner that has as been argued. On the contrary, evidence not only shows that there was absolutely no decline in work hours when phase-outs were extended but “that there was no bunching of taxpayers at the beginning and end of the phase-out range, as would be expected” (Hotz 2000 p. 30). It was also found that “EITC changes accounted for fifty-four percent of the increase in the employment rate of single mothers from1984 to 1996 and thirty-three percent of the increase from 1992 to 1996” (Hotz 2000 p. 30). Thus, the credibility of these moral hazard or unintended consequences arguments carry no weight and therefore should not be used.

     The societal benefits of the program are well documented. By encouraging work through a tax credit incentive we have seen a reduction in welfare cases loads (Bavier 2002 p. 23). Further, the EITC has been successful working within a system already in place. Implementation and management through the IRS system has eliminated the need for further infrastructure and manpower such as welfare offices and caseworkers thus saving taxpayer money. Further, it has been successful at reaching concentrations of low-wage workers found in urban and rural centers that are in need of assistance without expansion of bureaucracy and red tape (Berube 2004 p. 1). Finally, the EITC has shown better success reaching qualified participants than those that qualify for other programs such as food stamps (Burman 2003).

     The EITC, unlike other programs, is positively tied to earned wages. Perhaps more importantly, the EITC is not negatively connected to other programs such as food stamps. Studies show that income levels increased when welfare to work reform was implemented by forcing AFDC (Aid to Families with Dependent Children) recipients to engage in work activities (Bavier 2002 p. 24). However, this lead to reduced AFDC and other benefits desperately needed by recipients as these programs were tied to the poverty guidelines that mandated a reduction in benefits when income increased. The EITC program has addressed this issue by continuing to increase benefits up to a phase out limit and making other benefits independent of the EITC which has reduced socioeconomic inequalities found between the poor and middle class as well as increased the spending power of its participants. This is not to say that the EITC or increased wages through welfare to work programs catapults the poor into the middle class, as this is not the case. The gap has clearly widened and is more complex than any one program can address. This is only to say that the EITC is an important cog in the purchasing power of the working poor and without it the gap between these two groups would be greater.

     Historically, dealing with poverty and low wages is nothing new. Not one single program has been able to address all issues of poverty and achieve any type of overarching goals with perfection.   Yet the EITC programs success cannot be ignored.  While the EITC does nothing to improve work conditions of low-wage workers or address low wages of the working poor, it has done well in narrowing the income gap and improving both mental and physical health. It gives the individual enhanced well-being through autonomy and reduces public expenditures and inequalities.  These advantages clearly outweigh the costs as related to claims of fraud.  However, the limitation of the program’s success as it relates to broader inequalities should be researched.

     Increasing phase out limits and broadening the scope of eligibility by expanding benefits to college students to improve human capital investment should be explored as education has proven to be one of the most defining factors in pulling people out of poverty; more so than public assistance programs. However, careful attention should be given to the effect this would have on labor markets and any ripple effect as it relates to the supply and demand of higher skilled workers.  Further, while the EITC narrows income inequality in the short term, the one time lump sum payment restricts the use of any rebate making socioeconomic equality sporadic. Thus, the programs ability to reduce inequalities has long-term limits. Possibly allowing for alternative tax withholding options that would allow for EITC benefits to flow through the recipient’s paycheck throughout the year versus one lump sum payment may show improved long-term benefit. Finally, focus on EITC fraud should be shifted from misrepresentation of filing statuses to oversight of the tax preparation services in low-income neighborhoods as well as analysis of how to simplify the current tax code as this could have far reaching benefit from the working poor to the middle class.

References

Arno P, Sohler N, Schechter C. “The Impact of the Earned Income Tax Credit on Infant Mortality”. AcademyHealth. Meeting (2003 : Nashville, Tenn.). retrieved October 27, 2009 (http://gateway.nlm.nih.gov/MeetingAbstracts/ma?f=102275142.html)

Bavier, Richard. “Welfare reform impactsin the SIPP”. Monthly Labor review 2002. Retrieved on October 6, 2009. (http://www.bls.gov/search/?cx=011405714443654768953%3Abtgxl8qv780&cof=FORID%3A10%3BNB%3A1&ie=ISO-8859-1&prefix=&q=welfare+reform+impacts+in+the+SIPP&filter=0&sa=Search#1039)

Berube, Alan and Thacher Tiffany. “The “State” of Low-Wage Workers: How the EITC Benefits Urban and Rural Communities in the 50 States”. 2004. Retrieved October 6, 2009 (http://www.brookings.edu/reports/2004/02childrenfamilies_berube.aspx)

Burman, Leonard E. andDeborah. “EITC Reaches More EligibleFamilies Than TANF, Food Stamps”. 2003. Retrieved on October 6, 2009 (www.urban.org/uploadedpdf/1000467_EITC_reaches.pdf

Burwick, Andrew, Alicia Meckstroth, Michael Ponza, Shawn Marsh, Tim Novak, Shannon Phillips, Nuria Diaz-Tena, Judy Ng. “Paths to Work in Rural Places: Key Findings and Lessons from the Impact Evaluation of the Future Steps Rural Welfare-to-Work Program Final Report”. 2006. Retrieved September 17, 2009 (www.eric.ed.gov)

 “Children: Key National Indicators of Well-Being, 2009.” 2009. United States Department of Health and Human Services: Statistics.  Retrieved September 27, 2009 (http://www.childstats.gov/americaschildren/eco2.asp)

Eitzen, Stanley D. and Kelly Eitzen Smith. 2009. “Experiencing Poverty: Voices at the Bottom”. Boston, MA: Allyn and Bacon.

Hoffman, Saul D. and Laurence S. Seidman. University of Deleware. “REFORMING THE EITC”. 2002. Retrieved on October 6, 2009 (www.buec.udel.edu/hoffmans/.../nta%20-hoffman_seidman.pdf)

Hoffman, Saul D. and Laurence S. Seidman. University of Deleware. “Getting Back to the Earned Income Tax Credit: The Next Reform”. 2003. Retrieved on October 4, 2009 (http://www.buec.udel.edu/hoffmans/Research/)

Holtzblatt, Janet, JANET McCubbin and Robert Gillette. “PROMOTING WORK THROUGH THE EITC”. 1994. Retrieved on September 22, 2009 (http://ntj.tax.org/)

Hotz, V. Joseph and John Karl Scholz. “NOT PERFECT, BUT STILL PRETTY GOOD: THE EITC AND OTHER POLICIES TO SUPPORT THE US LOW-WAGE LABOUR MARKET”. OECD Economic Studies No. 31, 2000/II. Retrieved on October 4, 2009 (http://www.oecd.org/LongAbstract/0,3425,en_33873108_33873886_2697847_1_1_1_1,00.html)

McCubbin, Janet. U.S. Department of the Treasury Office of Tax Analysis. “EITC Noncompliance:  the Misreporting of Children and the Size of the EITC”. 1999. Retrieved September 29, 2009 (http://ntj.tax.org)

Nelson, Gesemia. Lecture October 5, 2009. “The EITC”. Metropolitan State College of Denver. Sociology, Poverty In America.

Rothstein, Jesse. Princeton University and NBER. “The Unintended Consequences of Encouraging Work: Tax Incidence and the EITC”. 2008.  Retrieved October 6, 2009 (http://www.princeton.edu/main/tools/search/?q=the+unintended+consequences+of+encouraging+work&x=0&y=0)

 Sen, Amartya K. “From Income Inequality to Economic Inequality”. Southern Economic Journal. 64:2:384-401. Chapel Hill. October 1997.