The temporary’s key findings are:
The Earned Revenue Tax Credit score (EITC) encourages low-income individuals with children to work – these with out children get a a lot smaller credit score.
Earlier EITC analysis has targeted on youthful households, however some analysts counsel an expanded childless credit score may enhance work amongst close to retirees.
This research finds that elevating the EITC by $1,000 would produce a modest rise in employment amongst single girls ages 55-64.
Nevertheless, this influence is far smaller than that for youthful single girls, maybe as a result of older girls have increased earnings or extra well being limitations.
Thus, an expanded EITC would primarily profit youthful employees, although with a optimistic facet impact for a minimum of some older employees too.
Introduction
The Earned Revenue Tax Credit score (EITC) – a refundable credit score that rises with earnings up to a degree earlier than phasing out – is likely one of the federal authorities’s largest poverty discount packages. The EITC’s design – which yields no profit to non-workers – has been discovered to encourage employment amongst lower-income people. This uncommon mixture of poverty discount and work encouragement signifies that enlargement of the EITC has lengthy loved bipartisan assist. One of the crucial widespread strategies for enlargement is a rise within the measurement of the credit score for childless households, which is presently so small that few individuals use it.1 Certainly, a tripling of the childless profit was a part of a brief package deal enacted in the course of the COVID pandemic.2
An enlargement of the childless profit is often framed as a boon for the well-being of youthful, low-income employees. Nevertheless, some have identified that one other profit could also be to encourage low-income people approaching retirement – who are sometimes susceptible to insufficient retirement sources – to increase their careers.3 For the reason that overwhelming majority of employees close to retirement – outlined right here as ages 55-64 – wouldn’t have dependent kids, they’d profit from such an enlargement. Nevertheless, as a result of the present EITC is used primarily by these with kids, no analysis has targeted on how older people would possibly reply to any enlargement. However, roughly 15 % of people close to retirement do have dependent kids, and this temporary makes use of them as a base for an evaluation of how older people responded to previous expansions relative to their youthful counterparts.4
The dialogue proceeds as follows. The primary part supplies background on the EITC. The second part discusses the methodology used to discover the influence of EITC expansions on older employees, and the third part discusses the outcomes. The ultimate part concludes that whereas previous EITC expansions doubtless have inspired some older employees to increase their careers, the impact is critical only for single girls and solely at a 3rd the speed of their youthful counterparts. Therefore, expansions of the childless credit score must be thought-about primarily within the context of youthful employees, however with the popularity that such an enlargement will doubtless encourage a minimum of some older people to work longer.
Background on the EITC
The EITC began as a small, non permanent provision in 1975, however enlargement over time has made it one of many greatest federal antipoverty insurance policies.5 The credit score is refundable, in order that it might probably enhance the revenue out there to a family as an alternative of merely decreasing its tax burden. The essential construction of the EITC is illustrated in Determine 1, utilizing the 2019 guidelines for example (the evaluation stops that yr to keep away from non permanent adjustments in EITC guidelines throughout COVID). The determine exhibits 4 outstanding options of this system. First, as talked about above, the EITC could be very small for households with out dependent kids.6 Second, the EITC will increase with the variety of dependent kids. Third, the credit score will increase as a family goes from no earned revenue as much as a reasonable revenue earlier than plateauing. And fourth, the credit score is regularly phased out as earned revenue will increase. Mixed, these 4 options imply that the EITC presently impacts primarily low-income households with kids, typically single moms.
As a result of the EITC solely applies to employees, it goals to encourage individuals to go from not working to working. Analysis on the subject strongly means that the coverage achieves this aim, particularly for youthful single mother and father.7 However, little analysis up to now has targeted on the EITC’s impact on older employees, although non-EITC-based analysis has advised that they might reply otherwise than youthful people to tax incentives.8 The rationale for this lack of focus is easy. Simply 15 % of people ages 55-64 nonetheless have dependent kids. Nonetheless, although small in proportion, this group who do have dependent kids can function a base for analysis.
Methodology
This temporary makes use of the Present Inhabitants Survey (CPS) from 1988-2019 and follows the methodology of Bastian and Jones (2021). That paper exploits variation within the measurement of the EITC each over time and throughout households with totally different numbers of dependent kids. Determine 2 exhibits this variation and illustrates two tendencies. First, in actual phrases, the utmost measurement of the EITC credit score has elevated because the Nineteen Eighties, with discrete jumps in 1991, 1994, and 2009. Second, the utmost credit score has diversified extra by the variety of kids in a family as households with extra dependent kids got bigger advantages relative to these with fewer.
The evaluation compares the employment of people with totally different entry to the EITC, utilizing the utmost credit score that every group can obtain as a proxy for program generosity. Though Determine 2 exhibits that enormous jumps in EITC advantages happen only a few instances, these adjustments introduce substantial variation within the most profit throughout households. For instance, in 1987, households with dependent kids obtained a modest most credit score of $1,915 (in 2019 {dollars}), no matter their household measurement. By 1996, that quantity for households with a single youngster had practically doubled to $3,513, and households with two or extra kids had seen their most profit triple to $5,796. Additional separation occurred for households with three or extra kids in 2009, once they obtained an almost 20-percent enhance of their most profit. Throughout the pattern thought-about right here, the common most EITC is $2,697, with a normal deviation of $2,334.
A regression is used to match the employment price of people going through totally different most EITC advantages, controlling for variety of kids, schooling, race, age, state of residence, and yr noticed. Regressions are run solely on these with a highschool diploma or much less, as they’re more than likely to be impacted by any enlargement of the EITC primarily based on their decrease earnings ranges.
Prob(Employment) = f(maxEITC, kids, race, schooling, age, yr, state of residence)
This strategy takes benefit of the truth that households with the identical variety of kids face totally different advantages at totally different instances, whereas households on the identical cut-off date face totally different advantages primarily based on their variety of kids. So, for instance, to the extent that people in households with three versus one dependent youngster work much less in 1987, the regression asks: did that distinction change when a three-child family obtained a relatively bigger EITC profit in 2010? Utilizing this strategy, Bastian and Jones report that the EITC considerably will increase the employment price of ladies, with the impact concentrated amongst single girls.9
The query right here is, does this end result differ primarily based on the age of the person? Thus, the evaluation is carried out individually for employees ages 25-54 and 55-64. As a result of the consequences of this system doubtless differ for ladies relative to males (who are inclined to earn extra), the evaluation can be completed individually by gender. And, as a result of the EITC can influence single versus married households otherwise, the evaluation is additional separated by marital standing.10
Outcomes
Earlier than turning to the regression outcomes, Desk 1 highlights key traits of the pattern by age. The older people are much less more likely to be employed, to have dependent kids, and to be Hispanic, and barely extra more likely to be highschool dropouts.
Determine 3 highlights the primary outcomes of the regression evaluation, with full ends in the Appendix. The determine exhibits how the varied teams’ probability of employment is predicted to reply to a $1,000 enhance within the highest EITC profit out there to them. For ladies, the outcomes counsel that older singles could be anticipated to extend their likelihood of working by 1.5 proportion factors, which is statistically important. Nevertheless, the dimensions of the impact is considerably smaller than for youthful single girls, whose employment could be anticipated to extend by 5.5 proportion factors. This end result could stem from the truth that older girls have extra work expertise and better earnings and so are much less affected by expansions. Or, the decrease impact may mirror extra well being limitations amongst this older group.11
The impact for older single males is comparable in magnitude to single girls, however insignificant statistically. This insignificance is probably going as a result of the pattern of single males ages 55-64 is simply 60 % the dimensions of single girls of this age, each as a result of increased mortality of males and the (associated) indisputable fact that males on this age bracket usually tend to be married. Youthful single males are considerably affected however at a decrease price than youthful single girls, once more doubtless because of their increased earnings.
Married girls in each age brackets usually are not predicted to be considerably affected. Such a discovering is widespread for younger ladies a minimum of, as married {couples} typically earn an excessive amount of to qualify for even the expanded variations of the EITC. Plus, if a girl has decrease potential earnings than her husband, he stands out as the one to decide on to work for wages and declare the EITC. Certainly, a optimistic important impact is discovered for youthful married males. Older married males appear to not be affected, doubtless as a result of their increased earnings typically push them out of EITC eligibility no matter whether or not the dimensions of the credit score expands.
Conclusion
Enlargement of the EITC – and specifically the childless employee profit – is one coverage that might encourage older people to work longer. The outcomes right here counsel that increasing the EITC would doubtless have a statistically important influence on some older people’ employment. However, that influence is more than likely to happen for older single girls – who characterize simply 20 % of these ages 55-64 – and at a price simply one-third that of comparable, youthful people. Whereas this evaluation relies totally on expansions to these with kids, it supplies a few of the first proof that older employees could also be much less conscious of the EITC than their youthful counterparts.
That stated, it’s clear from this evaluation and others prefer it that EITC enlargement has a substantial impact on the labor provide of youthful employees and with a optimistic facet impact: a minimum of some older employees are more likely to enter the labor pressure. These optimistic results on employment, which scale back poverty and dependence on different authorities packages, could also be purpose sufficient to assist an enlargement of the coverage.
References
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Bastian, Jacob E. 2020. “The Rise of Working Moms and the 1975 Earned Revenue Tax Credit score.” American Financial Journal: Financial Coverage 12(3): 44-75.
Bastian, Jacob E. and Maggie R. Jones. 2021. “Do EITC Expansions Pay for Themselves? Results on Tax Revenues and Authorities Transfers.” Journal of Public Economics 196: 104355.
Breunig, Robert V. and Andrew Carter. 2018. “Do Earned Revenue Tax Credit for Older Employees Delay Labor Market Participation and Enhance Earned Revenue? Proof from Australia’s Mature Age Employee Tax Offset.” Working Paper 2018-15. Canberra, AU: Tax and Switch Coverage Institute.
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Moulton, Jeremy G., Alexandra Graddy-Reed, and Lauren Lanahan. 2016. “Past the EITC: The Impact of Decreasing the Earned Revenue Tax Credit score on Labor Power Participation.” Nationwide Tax Journal 69(2): 261-284.
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Tax Coverage Heart. 2024. “EITC Parameters.” Statistics. Washington, DC: City Institute and Brookings Establishment.
Yin, Yimeng, Anqi Chen, and Alicia H. Munnell. 2024. “The Nationwide Retirement Threat Index: An Replace from the 2022 SCF.” Challenge in Transient 24-5. Chestnut Hill, MA: Heart for Retirement Analysis at Boston School.
Appendix
Endnotes
