The Earned Income Tax Credit may be even better than we thought

America's best program for the poor may be even better than we thought
http://www.vox.com/2015/7/16/8974745/eitc-study-hoynes-patel

The Earned Income Tax Credit isn't super well-known, but it's one of the best tools the federal government has for fighting poverty. It functions as a wage subsidy for the working poor, providing an average of $2,982 a year to families with children come tax season. The results are impressive. According to the Census Bureau, refundable tax credits like the EITC and the similarly structured Child Tax Credit cut the poverty rate (correctly measured) by 3 percentage points in 2013 — that's 9.4 million people kept out of poverty.

But a new study suggests that even that is an underestimate. UC Berkeley economist Hilary Hoynes and the Treasury Department's Ankur Patel find that the EITC might be twice as effective at fighting poverty as the census estimate suggests.

Hoynes and Patel focus on the credit's effect on single women with children, the single biggest group of recipients. It's well-known that the EITC encourages nonworking single moms and dads to enter the workforce; an analysis by the Center on Budget and Policy Priorities found that EITC brought more single mothers into the workforce in the 1990s than welfare reform did. That means that it boosts income not just by giving people money, but by getting people to work more and bring in more in wages. These increased wages can reduce income in other ways, such as by making people ineligible for programs like food stamps, but on the whole it boosts pay.

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The analysis comes with a caveat, however. Hoynes and Patel pinpoint one big weakness of EITC: It doesn't really do much for the poorest of the poor. "The EITC has an estimated zero effect on the share above poverty for those with income below 50% of the poverty threshold," they write. "This may reflect that the very lowest income groups have little attachment to the labor market." That suggests you need things like robust Social Security Disability Insurance and Supplemental Security Income and food stamps, which don't require recipients to work on top of EITC. It's an important program, but not the only one that matters.