Cost
It is difficult to measure the cost of the EITC to the U.S. federal government. At the most basic level, federal revenues are decreased by the lower, and often negative, tax burden on the working poor for which the EITC is responsible. In this basic sense, the cost of the EITC to the Federal Government was more than $36 billion in 2004.
It is also estimated that between 22% and 30% of taxpayers claiming the EITC on their tax returns do not actually qualify for it. This led to an additional cost to the government (in 2010) of between $8 and $10 billion.
At the same time, however, this cost may be at least partially offset by two factors:
- any new taxes (such as payroll taxes paid by employers) generated by new workers drawn by the EITC into the labor force;
- taxes generated on additional spending done by families receiving earned income tax credit.
Additionally, some economists have noted that the EITC might cause a reductions in entitlement spending that result from individuals being lifted out of poverty. However, because the pre-tax income determines eligibility for most state and federal benefits, the EITC rarely changes a taxpayer's eligibility for state or federal aid.
Read more about this topic: Earned Income Tax Credit
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