Policy Research

Dignity and Dreams: What the Earned Income Tax Credit (EITC) Means to Low Income Families

Jennifer Sykes, Katrin Križ, Kathryn Edin, Sarah Halpern-Meekin

Summary

The article attempts to examine psychological effects and anticipations of the Earned Income Tax Credit (EITC). The study includes a sample 115 interviews from families receiving a credit of at least $1000 and seeks to find what the credit means to households and how they spend it. The study finds that even though the EITC is means tested, it does not provide any negative social stigma for those receiving it. This idea goes against theories that any government service that is not universal would result in stigmas. The hypothesized reason for this is the fact that the EITC is distributed via the IRS and does not involve any visits to a welfare center. The credit also is mixed in with family’s tax refunds further separating it as a means tested welfare program. Because of this people tend to view the tax credit as something they earned with their work, thus allowing them to justify temporary increases in consumption and non-necessary spending. The study finds that having this ability allows low income families to increase their feelings of community and have a positive view on citizenship. Further, a large sum of EITC money is spent to pay off debts and bills.

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Policy Implications

This article can be used in assessing the utility gained in credits and programs such as the EITC. Tax credits appear to be an efficient way to deliver welfare payments due to their lack of negative social stigmas. Further, the increase in social belonging gained from receiving the credit may be accountable for increases in labor, or societal participation. The study also found that receiving the credit in an annual lump sum was appreciated by recipients and that most had plans to use the credit to achieve upward social mobility. This could be useful in attempting to design future anti-poverty measures.