Maggie Coleman wrote,
>Now, assuming eitc would have much the same effect of increasing
income by reducing the tax bite on dollars for low income working families, a
Keynesian argument would be that this would take more families off welfare
and put them into the workforce because there would be more jobs at some
point. The question (finally): Is any of this argument being waged by the
>proponents of the eitc or other tax breaks to working families?
Everyone agrees that the eitc will increase the labor supply of welfare
recipients. Max was simply trying to indicate that unless the demand curve
for labor is perfectly inelastic some of the benefits will remain with the
eitc recipient.
Whether or not the demand curve shifts outward due to an
income effect is a bit tricky. Remember that since the cost of the eitc is
factored into the balanced budget one cannot simply assume that this will be
a net increase in disposable income. Moreover, since economic growth seems
to at least be partially tempered by inflationary concerns of the Fed it is
even more problematic to suggest that there will be an income effect.
What is at issue, however, is not simply the impact of the eitc on
welfare recipients but also the working poor. As I mentioned in an earlier
post, with this group the concern is how serious is the work disincentive
given the high implicit tax rate they face. The just agreed upon
provision that families with incomes of at least $18,000 will receive the
child credit allowance (is it phased in??) will mitigate this somewhat.
Finally, I too am for the eitc -- who could be against it -- and in
particular believe that the work disincentive is a GOOD thing. What is
wrong with the government modestly subsidizing wives who are only
able to obtain low-wage employment with choosing to spend less time in the
labor market so that they can spend more time with their children?
Robert Cherry/Brooklyn College
