Does the EITC reduce the poverty rate?
The United States federal Earned Income Tax Credit (EITC) is a refundable tax credit that reduces or eliminates the taxes that low-income working people pay (such as payroll taxes) and also frequently operates as a wage subsidy for low-income workers. Enacted in 1975, the then very small EITC was expanded in 1986, 1990, 1993, and 2001 with each major tax bill, regardless of whether the tax bill in general raised taxes (1990), lowered taxes (2001), or eliminated other deductions and credits (1986). Today, the EITC is one of the largest anti-poverty tools in the United States.As far as I can tell, all of this is correct, except the last sentence about the EITC being an anti-poverty tool. Why isn't that last part correct? Because the Census omits the income from the EITC when computing the poverty rate. As a program to reduce measured poverty, the program is, by assumption, doomed to failure.
Of course, this is not really a problem with the EITC but, rather, a problem with the measured poverty rate. It makes no sense to evaluate poverty with a statistic that ignores the effects of one of the largest and most rapidly growing anti-poverty tools we have. But that is what the official statistics do.
The EITC is one reason why many low-income families consume more than they earn (a fact pointed out in the previous post). Government policymakers need to take a long, hard look at how poverty is measured. Meanwhile, journalists need to report the official statistics with a healthy dose of caveats.
Update: A commenter suggests that I edit the Wikipedia entry. Actually, since my post, someone has. But let me be clearer: I have no real beef with Wikipedia's explanation. It uses the word "poverty" the way every normal person uses it. Instead, I object to the Census's use of the term. If anyone knows how I can change the Census definition online, please let me know.