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The EITC over the Great Recession: Who Benefited?

Maggie R. Jones

Abstract:

In this paper, I examine individuals’ Earned Income Tax Credit (EITC) eligibility gain and loss over the Great Recession. Because the EITC is structurally tied to earnings, it is to be expected that a period of widespread job loss will impact eligibility. However, the direction of this impact is not obvious. Families who experience complete job loss for an entire tax year lose eligibility, while those experiencing underemployment (part-year employment, a reduction in hours, or spousal unemployment in married households) may become eligible. Determining the direction and magnitude of the impact is important for a number of reasons. The EITC has become the largest cash-transfer program in the United States, and many low-earning families rely on it as a means of support in tough times. The program has been considered a replacement for welfare, enticing former welfare recipients into the labor force. Recent research has begun to focus on the effectiveness of the EITC during a time when jobs are scarce; however, due to data limitations, the mechanism of EITC eligibility loss has not been addressed. To answer this question, I use the 2006 Current Population Survey Annual Social and Economic Supplement matched to tax data from 2005 through 2011 to examine changes in eligibility experienced by individuals over time. In assessing three competing causes of eligibility loss, I find that less-educated, unmarried women experienced a greater hazard of loss due a year-long lack of earnings compared with other labor-market groups. Meanwhile, this same group was less likely than other groups to gain eligibility through underemployment. Not only did many families headed by unmarried, low-skilled women appear to lose all earnings income during the recession, but they also lost credit dollars that averaged approximately $2,000 per tax year. I discuss the implications of these findings for the general dynamics of EITC eligibility spells and the saliency of the EITC as a safety-net program.

Citation

Maggie R. Jones (2017), The EITC over the Great Recession: Who Benefited?, The EITC over the Great Recession: Who Benefited? , National Tax Journal, 70:4, pp. 709-736

DOI: dx.doi.org/10.17310/ntj.2017.4.01