lecture13_Oct19 (1)

lecture13_Oct19 (1) - Earned Income Tax Credit (EITC) What...

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Earned Income Tax Credit (EITC)
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What is the EITC? § Refundable  tax credit families § Credit, not a deduction § Reduces tax dollar-for-dollar (versus a deduction, which  reduces  taxable income) § Refundable § Families who owe no tax may still receive full benefit § Who receives it? § Tax filers with earned income § How is it paid out? § Lump sum check from IRS as part of tax refund
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History of EITC § Proposed as effort to derail the Negative Income Tax  Negative Income Tax § Low minimum income guarantee, low benefit reduction rate § Universal, efficient administration (through tax system) § Labor supply effect looks similar to AFDC § 1975: First EITC enacted § Maximum credit $400/yr, up to 10% of labor earnings § Early 1990s: Substantial expansion of EITC § 1990: Max credit $953/yr (up to 14% of earnings) § 1996: Max credit $3556/yr (up to 40% of earnings) § Since 1994 benefits indexed to inflation, so real value  of benefits is constant (nominal value increases)
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EITC Parameters 2011 Childless One child Two children 3+ children Maximum  Credit $464 $3,094 $5,112 $5,751 Phase-in rate 7.65% 34% 40% 45% End phase-in,  begin disregard 6,070 9,100 12,780 12,780 End disregard, 
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This note was uploaded on 02/03/2012 for the course ECON 375 taught by Professor Staff during the Fall '10 term at Maryland.

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lecture13_Oct19 (1) - Earned Income Tax Credit (EITC) What...

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