Exploring Asian-American Poverty Part 3: The EITC as a Poverty Alleviation Tool

Exploring Asian-American Poverty Part 3: The EITC as a Poverty Alleviation Tool

Poverty Alleviation Policy Proposal: Based on the results in Parts I and II, the Asian-American subgroups most susceptible to poverty are immigrants from specific backgrounds, those without high school diplomas, and young adults (particularly high school dropouts). All three of these subgroups face lower earnings and employment as a result of their low level of human capital, and thus are at greater risk of poverty than Asian-Americans or Americans at-large. Based on these facts, an existing Federal program that can be used to help alleviate Asian-American poverty is the Federal Earned Income Tax Credit (EITC). 

Scope of the EITC:

Administration: The EITC is a refundable income tax credit that allows working and low-income families to supplement their income, particularly if they have children. Being a refundable credit, if a recipient owes zero tax liability, the recipient will receive the cash benefit allotted to them. If the recipient has a tax liability, then the credit is applied to their existing income tax and any amount refunded if their post-credit liability is below zero (Kagan). The amount that a recipient can claim varies based on income, filing status, and number of children (or not) (Bellafiore). As a Federal tax credit, the EITC is run by the Internal Revenue Service (IRS) ("Earned Income Tax Credit"), while 25 states, the District of Columbia, and New York City have their own EITC programs. Among these entities, the amount that can be claimed on state- or local-level income taxes constitutes a portion of the Federal-level credit amount, ranging from California's 45% to Louisana's 3%. Wisconsin's EITC has varying percentages of Federal credit amounts that are based on the number of children per filer ("States and Local Governments"). 

Program Eligibility and Execution: All American citizens and lawful permanent residents over the age of 25 (without children) (Bellafiore) with a social security number can apply for the EITC ("Can Immigrant Workers"). To receive the credit, potential recipients must also have earned income (defined below), minimum investment income, and any family members they are claiming must have a Social Security Number as well (Bellafiore). Earned income is defined by the IRS as income from wages, salaries, tips, union benefits, disability benefits, and self-employment income ("What is earned income?"). As a result of these requirements, undocumented immigrants are not eligible for the EITC (discussed in more detail below) (Greenstein). 

For those who are eligible and submit their tax return to claim the credit, the amount they receive depends on their marital status and how many children they have, if any. The amount a receipient can earn increases relatively drastically to a cutoff point (the "maximum credit") between $0 of earned income and the income level for the maximum credit. At that level, the recipient is able to receive the maximum amount for their demographic, which remains constant for a certain range of income. As income continues to rise, the range ends at the "phaseout point," where the total credit the recipient can claim drops until the credit reaches zero (Bellafiore). Visual 1 below visually demonstrates the amount a recipient can earn from the credit per child, marital status, and amount of earned income. 

Visual 1: EITC Benefits by Marital Status, Earned Income, and Number of Children:

Source: Robert Bellafiore, “The Earned Income Tax Credit (EITC): A Primer,” The Tax Foundation, 21 May 2019, taxfoundation.org/earned-income-tax-credit-eitc/. Accessed 18 Dec. 2019. 

Funding: In the 2017 tax year, the IRS spent $66.4 mullion on the EITC program, of which $56.7 million was refunded to 27 million recipients. Since the credit was enacted in 1975, the amount spent and refunded to recipients has generally increased, save for several decreases in the 1970s and 1980s ("EITC Recipients"). Several major changes where the amount spent on the tax credit increased significantly correlates to changes to the legislation and macroeconomic conditions. For example, EITC spending increased in the 1980s and 1990s as a result of the 1986 and 1993 credit expansions, whereas EITC spending during the rest of the 1980s was constant. Spending flattened again after 1996 until 2000, then grew slowly to 2009 (Akabas and Graham). Not only does this date correspond to the Great Recession, but another significant expansion of the credit which allowed married couples to claim more (Crandall-Hollick, 9). Since the Recession's peak, the rate of spending on the EITC has slowed down again, and is correlated with a decline in the number of recipients ("EITC Recipients"). 

Program Effectiveness:

Arguments For: Broadly, policy evaluations of the EITC show that it is an effective anti-poverty tool, although specific findings vary by study. One study found that 5.8 million children were kept out of poverty in 2016 because of the EITC, and that taxpayers with incomes under $30,000 receive a vast majority of the benefits (Bellafiore). A National Bureau of Economic Research (NBER) study found that increasing the EITC credit by $1,000 was associated with a 9.4% decrease in impoverished families (Hoynes and Patel). Other studies have revealed that in 2013, almost 27 million poor Americans faced reduced poverty as a result of the EITC, including 4.4 million adults and 5 million children (Debot et al.). In addition to its direct benefits to impoverished families, another cited result of the EITC is its mandate to increase labor force participation amongst impoverished individuals and families, while supplementing their income to pull them further out of poverty. In turn, this significantly assists single and working mothers by providing them extra income (Debot et al.).

Arguments Against: One of the most cited shortcomings of the EITC is that it does not provide sufficient benefits to childless and single workers, even though that group makes up 25% of all EITC recipients (Bellafiore). Another cited aspect of the EITC that limits its effectiveness as an anti-poverty tool is the "marriage penalty," which occurs when a previously single person marries and the two file together. With their combined income being considered, it is more likely for them to be above the "phaseout point," thus reducing total benefits they can receive (Bellafiore). Furthermore, one of the most prominent arguments about the EITC not being effective at poverty reduction is that it could disincentive work amongst its recipients. More specifically, the argument is that those who have enough income to receive maximum benefits, but not enough for phaseout, may have an incentive to not work more or find higher-paying work as it would reduce such benefits (Crandall-Hollick and Hughes, 13). In turn, this would (in theory) create a class of workers who stay in poverty just to receive benefits. A rebuttal against this argument asserts that this does not happen because many part-time workers who earn relatively little can work more (or close to full-time) to earn more benefits from the EITC while full-time workers are usually unable to adjust their hours (Crandall-Hollick, 13). 

Applications to Asian-American Poverty: While none of the studies cited above specifically addressed whether the EITC is specifically useful to alleviate Asian-American poverty, some inferences can be made using the results presented and the EITC's institutional structure, including: 

• Immigrants: As stated in Part II, many Asian-American immigrants face language and cultural barriers upon arriving in America. Language barriers in particular can inhibit the ability of immigrants to sign up for public benefits like the EITC, even if they know that it exists (Capps and Fortuny, 13). 
• Underemployment: Another critical result from Part II is that many Asian-Americans, both immigrants and native-born, are susceptible to under-employment or working in family businesses with few opportunities to advance (Tran). As such, it could be difficult for such workers to work more to receive more of the benefits provided by the EITC. 
• Young Adults: As noted in the "program eligibility and execution" section, EITC recipients must be at least 25 years old, while Parts I and II revealed that Asian-American young adults have high poverty rates (whether in school or not). This holds especially true for high school dropouts whose wages are likely to be too low to receive a significant amount of the EITC's benefits ("Unemployment rates and earnings"). 
• Senior Asian-Americans and others not able to work: As a tax credit, the EITC requires recipients to work to receive the benefits. As such, Asian-Americans who are unable to work, particularly those not old enough for social security, or receive little social security, are able to reap the EITC's benefits. This is critical when considering the earlier research presented about senior-age Asian-American immigrants and their difficulities in finding employment because of their age and cultural barriers (including language) (McNally et al.). 
• Single and Childless Asian-Americans: As noted above, like the American population at-large, impoverished single and childless Asian-Americans do not receive as much of benefits as those with children. 

Project Report Conclusion: Asian-Americans are often socially considered a "model minority" because of their higher-than-average educational attainment, lower poverty rates, higher income, and general economic well-being (Yung). However, that is not to the say that the group is perfect in that regards, and that all members of the group fit into that category. 

As revealed through this report's analysis of Census Bureau data and background research, significant pockets of poverty still persist among certain Asian-Americans, groups. These groups include immigrants, young adults, non-high school graduates, and (to a lesser extent) those without post-secondary education. In particular, Asian-American immigrants with backgrounds as refugees are more likely to be in poverty due to their lower levels of human capital. Meanwhile, many young adults are considered "impoverished" due to being enrolled full-time in educational institutions, which makes it unlikely for them to earn a high amount of income while in school. Finally, those without high school diplomas are vulnerable to poverty because their lower human capital significantly limits opportunities.

While the Earned Income Tax Credit (EITC) is an existing program that has and can assist many impoverished Asian-Americans pull themselves up from poverty, the program has some significant limitations that could limit its effects on these groups, including the very poor and those not able to work. As such, changes should be considered to the EITC to ensure that it can give all impoverished Asian-Americans a chance to reduce their likelihood of facing poverty. 

Works Cited:

Akabas, Shai, and Matt Graham. “The Earned Income Tax Credit: Facts, Statistics, and 

Context,” Bipartisan Policy Center, 12 Jun. 2013, bipartisanpolicy.org/blog/earned-income-tax-credit-facts-statistics-and-context/. Accessed 17 Dec. 2019. 

Bellafiore, Robert. “The Earned Income Tax Credit (EITC): A Primer.” The Tax Foundation, 

21 May 2019, taxfoundation.org/earned-income-tax-credit-eitc/. Accessed 18 Dec. 2019. 

“Can Immigrant Workers Get the EITC?” Get It Back, www.eitcoutreach.org/blog/can-immigrant-workers-get-the-eitc/. Accessed 18 Dec. 2019. 

Capps, Randy, and Karina Fortuny. “Immigration and Child and Family Policy.” The Urban 

Institute, 16 Jan. 2016, webarchive.urban.org/UploadedPDF/311362_lowincome_children3.pdf. Accessed 18 Dec. 2019. 

Crandall-Hollick, Margot L., and Joseph S. Hughes. “The Earned Income Tax Credit: An Economic Analysis.” Congressional Research Service. 13 Aug. 2018, fas.org/sgp/crs/misc/R44057.pdf. Accessed 18 Dec. 2019. 

Debot, Brandon, Chye-Ching Huang, Chuck Marr, and Arloc Sherman. “EITC and Child Tax 

Credit Promote Work, Reduce Poverty, and Support Children’s Development, Research Finds.” The Center on Budget and Policy Priorities, 1 Oct. 2015, www.cbpp.org/research/federal-tax/eitc-and-child-tax-credit-promote-work-reduce-poverty-and-support-childrens. Accessed 18 Dec. 2019. 

“Earned Income Tax Credit.” Internal Revenue Service. last modified 11 Dec. 2019, www.irs.gov/credits-deductions/individuals/earned-income-tax-credit. 

Accessed 18 Dec. 2019. 

“EITC Recipients, 1975-2017.” Statistics, Tax Policy Center, 30 Sept. 2019, www.taxpolicycenter.org/statistics/eitc-recipients. Accessed 17 Dec. 2019. 

Greenstein, Robert. “Trump Rule Would Threaten Low-Wage Legal Immigrants in the U.S. If 

Their Families Receive Any of Wide Array of Benefits, Including the Earned Income Tax Credit.” Center on Budget and Policy Priorities, 1 May 2018, www.cbpp.org/research/poverty-and-inequality/trump-rule-would-threaten-low-wage-legal-immigrants-in-the-us-if. Accessed 18 Dec. 2019. 

Hoynes, Hilary W, and Ankur J Patel. “Effective Policy for Reducing Inequality? The earned 

Income Tax Credit and the Distribution of Income.” National Bureau of Economic Research, Jul. 2015, www.nber.org/papers/w21340.pdf. Accessed 18 Dec. 2019. 

Kagan, Julia. “Refundable Credit.” Investopedia, 13 Jun. 2018, www.investopedia.com/terms/r/refundablecredit.asp. Accessed 18 Dec. 2019. 

McNally, James W., Keong-Suk Park, and VoonChin Phua. “Poverty Among Elderly Asian 

Americans in the Twenty-First Century.” Journal of Poverty, vol. 11, no. 2, 2007, pp. 73-93, doi: 10.1300/J134v11n02_04. Accessed 15 Dec. 2019. 

“States and Local Governments with Earned Income Tax Credit.” Internal Revenue Service. 

last modified 29 Mar. 2019, www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/states-and-local-governments-with-earned-income-tax-credit. Accessed 18 Dec. 2019. 

Tran, Victoria. “Asian American seniors are often left out of the national conversation on 

Poverty.” Urban Wire. The Urban Institute. 31 May 2017, www.urban.org/urban-wire/asian-american-seniors-are-often-left-out-national-conversation-poverty. Accessed 14 Dec. 2019. 

“What is Earned Income?” Internal Revenue Service. last modified 25 Nov. 2019, https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income. Accessed 18 Dec. 2019. 

Yung, Cynthia. “Us too: Acknowledging the struggles of Asian Americans.” TribTalk, The Texas Tribune, 6 Jun, 2018, www.tribtalk.org/2018/06/06/us-too- acknowledging-the-struggles-of-asian-americans/. Accessed 6 Oct. 2019. 

     Nathan Parmeter

     Host and Author, The Parmeter Politics and Policy Record