Helping Working Families: The Earned Income Tax Creditby Saul D. Hoffman and Laurence S. Seidman, Kalamazoo, Mich.: W. E. Upjohn Institute for Employment Research, 2003, 245 pp., ISBN 0-88099-254-9 (cloth), ISBN 0-88099-253-0 (paper).

This book is an update and expansion (which more than doubles the original length) of Hoffman and Seidman’s 1990 Upjohn Institute monograph on the U.S. federal earned income tax credit (EITC) program. Given that much expansion of the EITC program has occurred since 1990, this new version is welcome. The book opens with an introduction and an overview in Chapter 1 of the history and basic working of the EITC. The EITC program began in a modest version in 1975, whereby a household with at least one child received a ten percent supplement on wage earnings up to four thousand dollars (for a maximum credit of $400), followed by a phase-out range up to a household income of $8000. By comparison, the maximum credit for 2002 was $4140 and the maximum phase-out point was $34,178 (for a married couple with at least one qualifying child). Major expansion of the program occurred in 1990 and again in 1993, and the Economic Growth and Tax Relief Act of 2001 continued the expansion by, in particular, increasing benefits for married couples, for a rise in the total amount expended on this refundable tax credit (both refundable and foregone tax income) from $1.3 billion in 1975 to a projected $30.7 billion in 2001. In addition, about a third of the states have an EITC program, generally “piggybacking” onto the Federal EITC eligibility provisions and giving an additional percentage back of the EITC amount off state income tax (generally also refundable). Chapter 2 discusses the characteristics of the beneficiaries of this program and compares them to the general population, and to those under the poverty line. The authors use 1996 data from the Panel Study of Income Dynamics to simulate eligibility and credit amounts received. They estimate that about one household in seven is eligible for the EITC, with high eligibility rates for minority households and single-parent families, and that about one in five households containing married couples with children is also eligible. They characterize the EITC as a program for low and moderate-income families rather than for poor families, given that many poor families have no children or insufficient earnings to qualify, and that people with low earnings receive lower benefits. Nonetheless, about 35 percent of poor families are eligible, while nine percent of nonpoor families are eligible. Thus, the authors’ simulations show that the effect of the EITC on the overall poverty rate has been small, though nontrivial (about four million persons, for a reduction of 1.5 percentage points of the poverty rate, are lifted out of poverty by this program). Chapter 3 considers labour market effects of the program. The EITC can be viewed as a wage increase for people on the phase-in part of the schedule (with opposing income and substitution effects for workers and a pure positive substitution effect for nonworkers), a pure increase in income for people on the very small stationary part of the schedule, and a wage decrease on the phase-out part of the schedule (although still serving as a net increase in income, so it has both negative income and substitution effects on labour supply). In their summary of the relevant literature, the authors find results consistent with economic theory, including larger labour force participation than work hour effects, including decreased labour force participation among married women on the phase-out part of the schedule. The net result on total supply appears to be a rise in hours worked, albeit small relative to the total labour supply, with no measurable accompanying change in the market wage rate. As with the rest of the current U.S. tax code, …