Extract from “The Earned Income Tax Credit (EITC)” by Austin Nichols and Jesse Rothstein (2015). National Bureau of Economic Research, Working Paper no. 21211.
James J. Heckman
AEA Continuing Education Program, ASSA Course: Microeconomics of Life Course Inequality, San Francisco, CA, January 5-7, 2016
Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 1: EITC Schedule for Single Parents with Two Qualifying Children, 1979, 1993, 1996 and 2014.
Sources: U.S. Government Publishing Office (2004); Internal Revenue Service and U.S. Department of the Treasury (2014). Notes: Calculations assume no unearned income. Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 2: Maximum real credit over time, by number of children
Sources: U.S. Government Publishing Office (2004); Internal Revenue Service Publication number 596 (various years). Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 3: Combined EITC & Child Tax Credit Schedules, 2013
Sources: U.S. Government Publishing Office (2011); Internal Revenue Service (2013). Notes: Figure includes only the refundable portion of the Child Tax Credit. Calculations assume that adjusted gross income equals earned income. Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 4: Universally available tax and transfer benefits: Single parent with two children in Colorado, 2008 (from Maag et al. 2012)
Sources: Reproduced from Maag et al. (2012), Figure 1. Tax and transfer rules are for 2008 with hypothetical exchange plans in 2014 added in. Health value estimates are based on Medicaid spending and insurance premiums as reported by the Kaiser Family Foundation. Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 5: Number of EITC recipients and total EITC and CTC outlays, by year
Sources: Internal Revenue Service (2014d, e); Tax Policy Center (2014, 2015). Notes: Child Tax Credit expenditures include the Additional Child Tax Credit. Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 6: Income distribution of EITC recipients, 2012
Source: Internal Revenue Service (2014f). Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 7: Income distribution of CTC recipients, 2012
Source: Internal Revenue Service (2014g). Note: Figure reflects the CTC-weighted income distribution, corresponding to the total payments series in Figure 6. Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 8: Panel A: By marital status and presence of children
Source: Authors analysis of the Current Population Survey Annual Social and Economic Supplement (CPS ASEC, also known as the March CPS). Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 8: Panel B: Unmarried women, by number of children
Source: Authors analysis of the Current Population Survey Annual Social and Economic Supplement (CPS ASEC, also known as the March CPS). Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Labor supply responses to the EITC Panel A
Panel B
Panel C
Panel C
Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 9: EITC schedule, 1975–2014 (selected years), in 2013 dollars
Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Table Notes [1] Beginning in 2002, the values of the beginning and ending points of the phase-out range were increased for married taxpayers filing jointly. The values for these taxpayers were $1,000 higher than the listed values values from 2002–2004, $2,000 higher from 2005–2007, $3,000 higher in 2008, $5,000 higher in 2009, $5,010 higher in 2010, $5,080 higher in 2011, $5,210 higher in 2012, $5,340 higher in 2013, $5,430 higher in 2014, and $5,520 higher in 2015. Source: Tax Policy Center, http: //www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=36 Last visited November 14, 2014 [2] Nominal dollars for 2014 and 2015.
Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 10: State EITCs in tax year 2014
*Maryland offers a non-refundable credit of up to 50% of Federal EITC or a refundable credit of up to 25% of Federal EITC. Sources: Internal Revenue Service (2014b); Tax Credits for Working Families (2011); Stokan (2013). Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 11: In-work tax credits in the OECD
Sources: OECD (2011, 2014, 2015); Owens (2005); World Bank (2014) Notes: Table includes only programs that are generally applicable, without restrictions to specific subpopulations (e.g., the long-term unemployed). Where schedules vary with family structure, values shown are for families with two children. *Not applicable or phase-in rate is not well defined (e.g., due to interactions with other taxes). **No phase-in rate but available only if meet minimum hours or earnings criterion. ***Calculated on the basis of one earner working 19 hours per week at the minimum wage. ****Not reported by OECD. Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 12: Distribution across EITC credit ranges, by demographic characteristics
Source: Authors’ analysis of the 2012 CPS ASEC. Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 13: Number of EITC claims and dollars spent, 2011, IRS data vs. Current Population Survey.
Source: http://www.irs.gov/uac/SOI-Tax-Stats-Individual-Income-Tax-Returns and authors’ calculations using CPS ASEC (March 2012) data.
Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 14: Concordance between EITC simulations in CPS and using tax return income
Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Table Notes Source: Authors’ analysis of 2012 CPS ASEC, and Jones (2015). Notes: Columns 1–2 from CPS. Column 3 is based on matched CPS–IRS data, and uses Form 1040 income measures in place of the CPS measures. Column 4 shows the share of tax units that appear EITC eligible when IRS data are used who are also eligible when CPS data are used, while column 5 shows the converse. IRS simulations are based on 75,963 tax return records and 115,281 W-2 records matched to 143,099 CPS records, covering about 95% of taxpayers (weighted). CPS records with imputed earnings (22%) or no linkage possible (7%) are excluded.
Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
Figure 15: Simulations of EITC incidence
Notes: Calculations are based on the estimates of Rothstein (2010), Table 5, Panel A, and correspond to $1 in EITC spending distributed across single and married women with children in proportion to their share of actual EITC spending.
Austin Nichols and Jesse Rothstein
The Earned Income Tax Credit
