Expanded Earned Income Tax Credit, Economic Growth Reduced U.S. Poverty, Analysis Finds

2/26/2004

Contacts: Craig Gundersen of Iowa State University, 515-294-6319 or cggunder@iastate.edu; or James P. Ziliak of the University of Kentucky, 859-335-9934 or jziliak@uky.edu,

AMES, Iowa., Feb. 26 -- The expansion of the Earned Income Tax Credit (EITC)--from a maximum credit of $500 to $3,800 for lower-income workers--contributed up to 50 percent of the decline in after-tax poverty during the 1990s, according to an analysis published in the February issue of the journal Demography.

Craig Gundersen of Iowa State University and James Ziliak of the University of Kentucky examined the extent and depth of U.S. poverty between 1981 and 2000 using state-level data collected by the U.S. Census Bureau and the Bureau of Labor Statistics.

"While the rising tide didn't lift all boats in the same way, strong economic growth was critical in reducing the total number of poor families and the severity of their poverty," noted Ziliak.

Significant increases in median wages were especially important in explaining the large declines in poverty among female-headed families and families headed by blacks, they report.

Rising wage inequality--the growing gap between high and low wage earners--tempered the gains made against poverty overall, most notably for married-couple and white families.

States with more generous minimum wages relative to the national level had somewhat lower poverty rates, they found.

The researchers found limited and mixed evidence that after- tax poverty was lower among female-headed and black families after states adopted welfare changes in the early 1990s and federal welfare reform was enacted in 1996.

They noted increases in poverty among married-couple families in reaction to welfare reform, leading them to question whether impoverished single mothers married, and couples avoided divorce, in response to welfare policy changes.

Gundersen and Ziliak conclude that policies fostering economic growth, coupled with a redistributive tax policy such as the EITC, are likely to lead to further declines in poverty in the United States. Ziliak's research was supported in part by the U.S. Department of Agriculture, Economic Research Service.

The full article, titled "Poverty and Macroeconomic Performance Across Space, Race, and Family Structure," can be obtained from the Center for Public Information on Population Research, e-mail jhaaga@prb.org or phone 202-939-5414. The Center, a project of the Population Reference Bureau, is funded by the National Institute on Child Health and Human Development.