Friday, November 7, 2014
Cochiti (Convention Center)
*Names in bold indicate Presenter
Using restricted-access municipal tax data, we assess the combined effect of the District of Columbia (D.C.) supplemental earned income tax credit (EITC) and the federal EITC on poverty, employment, and income changes within Washington, D.C. from 2001-2012. The supplemental D.C. EITC has existed since 2001, and has expanded from 10 percent of the federal credit to 40 percent as of 2009. The results of this study will inform other states and regions seeking policy solutions to provide upward economic mobility for workers with stagnant wages, many of whom lack the higher education needed to find and maintain higher paying employment opportunities. To implement the study, we estimate least squares and maximum likelihood models with 0/1 indicator variables for poverty, employment, and between year income change beyond thresholds of 10, 20, and 25 percent. To identify the marginal effect of the EITC, we exploit variation in the EITC subsidy rate from 2008 to 2009, when an additional EITC bracket of 45 percent was added for workers with three children, up from 40 percent in the previous year. Internal tax data is supplemented with information on economic and demographic characteristics, including racial/ethnic composition, average education and income, measures of the local economy, and spending on poverty programs such as cash assistance and food stamps. We also include time period controls for each year in the data from 2001 – 2012 accounting for secular trends unrelated to EITC policy.
The EITC has wide appeal as a labor market policy because it increases work incentives and does not raise employer costs, in contrast to some proposals that raise the minimum wage. In the absence of improved private labor market wage growth, programs like the supplemental EITC in D.C. may be considered and pursued by other regions as a work support for adults living within or near the poverty threshold. For such regions, this study could yield updated information surrounding the benefits and consequences of adopting a wage subsidy via supplemental EITC’s.