Rewarding the Work of Individuals: A Counterintuitive Approach to Reducing Poverty and Strengthening Families

Source: The Future of Children (via MRDC)

Between the end of World War II and 1973, the share of Americans living in poverty fell by half. But since 1973 the overall poverty rate has remained largely unchanged. Why didn’t poverty continue to decline? Falling wages and increasing rates of lone parenting are the two principal explanations. Economic changes led to stagnant and declining wages at the bottom of the wage distribution, especially among men with a high school diploma or less, and demographic changes saw a near doubling of the fraction of all families with children that were headed by a single parent.

The problems of falling wages and single parenthood are intertwined. As the wages of men with a high school education or less began to tumble, the employment rates of these men also fell, and, in turn, the share who could support a family above the poverty line began to decline — and with it the professed willingness of low-income mothers and fathers to marry. Because the U.S. social welfare system is built around the needs of poor families with children — and largely excludes single adults who are poor (and disproportionately male) — it creates disincentives to work and marry for some, aggravating these larger trends. Although recent changes have reduced marriage penalties in the tax and transfer system, some do remain, particularly when both spouses in a married-couple family have similar earnings.

A strategy that used the federal Earned Income Tax Credit (EITC) to supplement the earnings of all low-wage workers aged 21 to 54 who work full time — whether they have children or not and whether they marry or not — would counter three decades of wage stagnation and persistent poverty, with significant positive corollary effects on employment and parental child support. By conditioning the benefit on full-time work, by targeting individuals regardless of their family status, by keeping the existing EITC for families with children in place, and by calculating EITC eligibility on the basis of individual income (as Canadians and Europeans do) rather than joint income for tax filing purposes, this earnings-based supplement would restore equity to the American social compact while minimizing the distortion of incentives to work, marry, and bear children.

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