> From: Robert Cherry <[EMAIL PROTECTED]>
> Subject: [PEN-L:11518] Re: Child tax credit
> 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 . . .
The biggest factor is the likely increase in tobacco taxes. I doubt
the increase in the tax on airline tickets will have much impact
on the working poor.
> 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.
The implicit marginal rates are indeed extremely high in certain
cases. On the other hand, a fair amount of research suggests
the marginal rates don't matter that much. 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. An exception
is the concern about loss of Medicaid benefits for their children.
One of the few and fairly significant bright spots in the budget deal
is an expanded access to such benefits.
> 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?
I'm for it but (not because) I think it has the opposite effect
(e.g., encouraging work). I guess this is called 'operational
unity.'
Cheers,
MBS
"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
of anyone associated with the Economic Policy
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