Policy Proposal: Modifying the Federal Earned Income Tax Credit to Better Help Households with One or No Dependents

Abstract

This paper discusses four recommendations to improve the federal Earned Income Tax Credit, (EITC), which effectively acts as a wage boost for very-low-income and low-income workers. The credit amount varies tremendously depending on the number of dependents one has. This discrepancy is the paper’s main focus. This paper finds that the EITC’s failure to significantly help taxpayers without dependents, among other challenges, limits its ability to fulfill the program’s goals of incentivizing work and reducing poverty. The four recommendations on average would expand the availability and amount of the credit for most lower-income taxpayers. A conventional economic analysis suggests that these changes would likely incentivize work for many (though not all) affected individuals, increase consumer spending, reduce poverty, and increase equity. In a somewhat limited manner, this paper recommends the set of changes for enactment.