> From: Robert Cherry <[EMAIL PROTECTED]>
> Subject: [PEN-L:11531] Re: Child tax credit
> YouR response seems to conflate two distinctly different aspects of the
> labor supply response: The welfare versus work decisions of female heads of
> households and the labor supply of mothers with working husbands that are in
> the phase-out range of the eitc schedule.
>
> I am focusing solely on the latter group and arguing that for a
> substantial portion, it is quite rational under the current system for them
> to cutback on their work effort even if it means that the household income
> declines from say $20,000 to $16,000. There actual disposable income will
> not decline by $4000 since they will obtain an additional $884 of eitc; they
> will save $600 in federal income taxes and $310 in SocSecTax, as well as
> hundreds of dollars in commuting-related and childcare-related expenses.
> With a quite small net income decline, I would expect many of these mothers
> would choose the $16,000 by cutting back their market labor.
I think that's entirely well-taken.
> For this group your comment --"The answer that appeals to me is that
> people basically would rather be working than on welfare, even if the
> financial
> benefits are not that great, so they don't care too much about marginal tax
> rates" -- is beside the point. I would expect that the reason why they often
> continue to work the same hours is that these mothers are not completely
> clear on how large their implicit tax rate is.
Right. I was thinking of either the male adult in the household, or
a female head of household. My hypothesis is that for cultural
reasons, either type of person would put an important non-
pecuniary value on working.
> Similarly, my view that we should look positively on this disincentive
> aspect of the eitc, has little to do with your judgment that the *aggregate*
> effect of the eitc on labor supply may be positive. It may well be
> the case that the positive effect on female-headed households
> outweighs the negative effect on mothers with employed husbands. However,
> what if it is found that the eitc does have the substantial negative
> impact on the market supply decision of mothers with working husbands. I
> am simply arguing that we should be able to defend this aspect of the
> eitc.
I don't disagree. Making such a case is feasible if
one adult in the household is working.
Cheers,
Max
"People say I'm arrogant, but I know better."
-- John Sununu
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Max B. Sawicky Economic Policy Institute
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Opinions above do not necessarily reflect the views
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