February 7, 2020

EITC Is Just Another Wealth-Redistribution Program

New study shows the program’s growth produced the opposite effect of its original intention.

A recent study conducted by Princeton economist Henrik Kleven determined that the federal Earned Income Tax Credit (EITC) has for the most part failed to deliver what’s been promised since its creation by Congress back in 1975. The theory behind the EITC was that it would encourage greater workforce participation by offering tax incentives to those who would otherwise refuse to take a low-paying job.

Since the EITC’s creation, the threshold for eligibility has been expanded several times, to the point where one in five households now claim the credit. Moreover, as The Wall Street Journal explains, “Government payments exceed cash welfare by six times.” In other words, it’s become a massive wealth-redistribution program.

The Journal further notes, “Complicated rules on eligibility and credit size have encouraged fraud. According to the IRS, a quarter of the $69 billion in EITC payments last year were ‘improper.’ Yet politicians from both parties continue to pump it as a labor inducement [despite] scant evidence it boosts employment.”

Kleven’s research debunks one of the biggest political justifications for the program: the claim that the EITC was responsible for sparking greater labor participation and employment among single-mother households in the early and mid 1990s. He points to the economic expansion and increased employment numbers at the time as the actual cause behind the jump in single working mothers. “Overall and contrary to consensus, the case for sizable extensive margin effects of the EITC is fragile,” Kleven concludes. Translation: Cleverly constructed welfare payments don’t drive people back to work.

Color us shocked — shocked — that another leftist scheme for income redistribution has failed.

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