Income Inequality and the Earned Income Tax Credit

(Muhlenberg College, USA)

Abstract: The United States tax code is full of laws with long forgotten historical context. Under this historical context, there are numerous instances of both intended and unintended consequences of such laws. This concept is exemplified by the earned income tax credit, which has proven to both improve and diminish income inequality in the United States. This paper delves into the history of the earned income tax credit, the mechanics of the credit, the controversy surrounding the credit, and how the credit is impacting the future of tax law. The history of the earned income tax credit is linked to the politics of poverty and very much dictates how the earned income tax credit is calculated. There is controversy regarding the effectiveness and the credit’s shortcomings. It also very much informs what the tax credit will look like in future tax seasons.

Key words: taxation, EITC

JEL code: M490