By Devin Simpson
If the title of the recently-enacted Tax Cuts and Jobs Act is any indication, it is intended to boost employment and lower taxes, presumably for those who need tax relief. But despite its sweeping changes to the federal tax code, the package overlooks one of the most effective programs for achieving economic growth and shared prosperity: the Earned Income Tax Credit (EITC).
The EITC has been proven to incentivize employment, boost earnings for low-wage workers, improve health and educational outcomes for children and even play a role in narrowing the racial wealth divide. New research now finds that the credit’s effects on earnings may be more lasting than previously understood.
A new study by David Neumark and Peter Shirley of the University of California, The Long-Run Effects of the Earned Income Tax Credit on Women’s Earnings, examines the lifelong benefits of the EITC for women with children. The study finds that the credit not only boosts income among recipients during the time of receipt, it also increases lifetime earning potential. The authors conclude that the EITC benefits the economy in the long term by leading to the accumulation of skills that improve a worker’s earnings and the country’s stock of human capital.
These new findings add to an already extensive body of research showing the EITC’s effectiveness. Why wasn’t it expanded as part of tax reform? What can be done to strengthen the credit moving forward? Join us and Prosperity Now on Capitol Hill February 1 to learn more about the EITC’s role in tax reform and what lies ahead for the credit in 2018. Click here to register.