Refundable Tax Credits: More Efficient Poverty Relief than Direct Government Spending?

IRS and Treasury officals, such as IRS earned income credit (EIC) director David Williams and Treasury Deputy Director of Individual Taxation Janet Holtzblatt said that administrative complications should make Congress wary about adding additional credits. Nevertheless, Holtzblatt said that she had become convinced that the EIC was worthy of being in the code; moreover, the EIC was the only contact that many working poor families had with the Internal Revenue Code. The EIC was also praised for efficiency--an administrative cost of 1% versus up to 40% for food stamps and for participation rates of 75-80%. NYU Tax Professor Lily Batchelder effectively encouraged a refundable credit for home ownership and modifying other tax incentives into refundable credits.

Ms. Batchelder's fellow NYU Tax Professor Daniel Shaviro runs a tax blog linked at right called "Start Making Sense." Based on apparently reluctant testimony by Ms. Holtzblatt, the earned income credit is indeed making sense.