Tuesday, January 25, 2022
Hawai'i Free Press

Current Articles | Archives

Friday, April 15, 2016
Does the EITC Reduce Savings Among the Poor?
By NCPA @ 7:00 PM :: 3560 Views :: Tax Credits

Does the EITC Reduce Savings Among the Poor?

by Alex Durante, The Tax Foundation, April 11, 2016

We have previously discussed some of the drawbacks of the Earned Income Tax Credit (EITC), including a high rate of improper payments and work disincentives as the credit phases out. Recent research has found that these work disincentives may apply to more workers than previously thought. Less explored in the literature, however, is the effect of the EITC on the savings behavior of poor households.  A recent paper published in the National Tax Journal by University of Oregon Professor Caroline Weber addressed this very issue, and found that nearly 40% of the decline in saving from 1988-2006 for those who claim the credit can be explained by recent expansions in the EITC.

It is not uncommon for poor households to have some savings. In 1988, 26.2% of individuals that claimed the EITC had some dividend and interest income. In 2006, that share had fallen dramatically by more than half to only 12.3%. Weber found that savings declined during the phase-out range of the credit, as workers lose some proportion of their credit for each additional dollar they earn. She estimated that if the EITC’s disincentives to save had remained at the 1988 level, the average stock of savings would have been a staggering $1,030 for the program’s recipients. Given that accumulating savings remains essential to escaping poverty, this is a troubling finding.

Weber excludes households without children from her sample because the phase-out range begins at very low incomes for those taxpayers. However, her research suggests negative effects if the EITC were more generous for this particular group, as both House Speaker Paul Ryan and President Obama have recently proposed. Both have called fordoubling the credit amount for childless adults from approximately $500 to $1000 and extending the range of income over which the benefit applies. Unfortunately, as this group earned more income, they would likely face similar disincentives to save as families that receive the EITC currently do.

Few policies have enjoyed as much bipartisan support as the EITC. While there is no doubt that the EITC has reduced the depth of poverty for some families, any benefits from poverty reduction must be weighed against the exorbitant costs of the program, the risk of trapping workers in low-wage employment as the credit phases out, and the program’s disincentives to save. We hope policymakers will consider all of the benefits and costs before deciding whether to expand the EITC.

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

808 Silent Majority

ACA Signups Hawaii

Alliance Defending Freedom

Aloha Pregnancy Care Center

American Council of Trustees and Alumni

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Astronomy Hawaii

Back da Blue Hawaii

Ballotpedia Hawaii

Better Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

ChinaTownWatch.com

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii

FIRE

Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Habele.org

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii Coalition Against Legalized Gambling

Hawaii ConCon Info

Hawaii Credit Union Watch

Hawaii Crop Improvement Association

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Advocates

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federalist Society

Hawaii Federation of Republican Women

Hawaii Future Project

Hawaii Gathering of Eagles

Hawaii History Blog

Hawaii Homeschool Association

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Life Alliance

Hawaii March for Life

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Smokers Alliance

Hawaii State Data Lab

Hawaii Together

HIEC.Coop

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

Investigative Project on Terrorism

July 4 in Hawaii

Kakaako Cares

Keep Hawaii's Heroes

Land and Power in Hawaii

Legislative Committee Analysis Tool

Lessons in Firearm Education

Lingle Years

Malulani Foundation

Managed Care Matters -- Hawaii

Malama Pregnancy Center of Maui

Mauna Kea Recreational Users Group

MentalIllnessPolicy.org

Military Home Educators' Network Oahu

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

Natatorium.org

National Christian Foundation Hawaii

National Parents Org Hawaii

NFIB Hawaii News

No GMO Means No Aloha

Not Dead Yet, Hawaii

NRA-ILA Hawaii

Oahu Alternative Transport

Obookiah

OHA Lies

Opt Out Today

OurFutureHawaii.com

Patients Rights Council Hawaii

PEACE Hawaii

People vs Machine

Pritchett Cartoons

Pro-GMO Hawaii

P.U.E.O.

RailRipoff.com

Rental by Owner Awareness Assn

ReRoute the Rail

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

Robotics Organizing Committee

Save Dillingham Airfield

School Choice in Hawaii

SenatorFong.com

Sink the Jones Act

Statehood for Guam

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

UCC Truths

US Tax Foundation Hawaii Info

VAREP Honolulu

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii

Yes2TMT