Chris Edwards of the Cato Institute submits the following about his new report with Veronique de Rugy about the impact of the federal Earned Income Tax Credit.
The study summarizes the credit’s benefits as identified in the academic literature, but argues that the damage caused is higher.
The EITC reduces market wages, is plagued by errors and fraud, has high compliance costs, and produces a disincentive to increase earnings for three quarters of recipients. The EITC also imposes a deadweight loss on other taxpayers and the economy as the program’s $60 billion in annual spending must be financed.
There is no free lunch with federal subsidy programs, and the EITC is no exception.
