Silviase/jgov_v1.4_full_ann huggingface dataset:
reason of a physical or mental impairment that is expected to last for more than 12 months or result in death. $ ^{7} $ Workers must have a minimum period of covered employment before being eligible; depending on the age at which a disability occurs, this ranges from 6 to 40 covered quarters. DI rules are stringent, with fewer than 40 percent of all applications being granted benefits; roughly 5.4 awards are made per 1,000 covered workers. Around 8.6 million people (including children) receive disability benefits, which cost 95 billion in 2006. Most DI recipients are pre-tax-and-transfer poor.

Supplemental Security Income (SSI) is a means-tested, federally-administered, cash assistance program for the aged, blind and disabled. The disabled make up nearly 80 percent of recipients: these individuals generally do not have the prior work history needed to qualify for DI. An individual who meets the income, asset and categorical eligibility standards receives a cash transfer of up to $637 per month; couples can receive up to 1.5 times that amount, and children can receive half that amount, although states are allowed to supplement these amounts. In 2006, 7.2 million people received $40 billion in benefits.

### b. The safety net for prime-age individuals and their families

Unemployment insurance is a state-level program that provides temporary and partial wage replacement to workers who become involuntarily unemployed and who have a recent history of continuous employment at moderately high wages. $ ^{8} $ While UI allows families to maintain their consumption during periods of involuntary layoffs (Gruber, 1997), it has relatively small antipoverty effects because so many unskilled individuals do not have the necessary employment
history at high enough wages. The Government Accountability Office (2000) reports that in the 1990s, low-wage workers were twice as likely to be unemployed but less than half as likely to receive UI as other unemployed workers. $ ^{9} $ Unemployment insurance is highly cyclical. In 2003, a year of slow economic growth, 61 billion in real UI benefits were paid out, while real payments were 25 billion in 2000, a year with low unemployment.

Workers’ compensation is a state-level program that provides cash and medical benefits to some persons with job-related disabilities or injuries and provides survivors’ benefits to dependents of workers whose death resulted from a work-related accident or illness. Benefit levels vary widely across states. Workers’ compensation payments were $59 billion in real terms in 2005; Meyer, Mok and Sullivan (2007) note that roughly half of total program costs are for medical care. Because there is little Federal involvement in this system, there is little information on its antipoverty effects. Such effects are likely to be small, however, for the same reasons that UI has limited antipoverty effectiveness.

In contrast to unemployment insurance and workers’ compensation, which are social insurance programs, means-tested transfers are financed by general tax revenues rather than through dedicated financing mechanisms. All means-tested programs limit benefits to those whose incomes (and generally assets) fall below some threshold. Some are entitlements—all who satisfy the stipulated eligibility requirements get benefits, regardless of the total budgetary cost (e.g., Medicaid, Food Stamps). Other means-tested programs provide benefits only until the funds Congress or a state has allocated are spent, even if some eligible participants are not served (e.g. State Child Health Insurance Program, Section 8 housing vouchers, TANF). Means-tested
programs have explicit antipoverty goals. Together, they account for a much smaller share of government budgets than social insurance programs.

Medicaid, the largest means-tested transfer program, funds medical assistance to persons who are aged, blind, disabled, or are certain other pregnant women or dependent children. Recipients must meet asset and income tests that are set by states. About 55 million people received Medicaid in 2004. $ ^{10} $ Total real Medicaid spending was around 320 billion in 2006.

Aid to Families with Dependent Children (AFDC) was the central safety net program for poor families with children from 1936 to 1996 (Moffitt, 2003b). This program was directed primarily at single-parent families, though some two-parent families with an unemployed parent received benefits. AFDC was a means-tested entitlement, meaning that all applicants whose income and assets were below the stipulated levels could receive benefits. States determined benefit generosity that varied widely; funds were provided according to an uncapped federal matching formula.

The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 abolished AFDC and created Temporary Assistance for Needy Families (TANF), which provides block grants to states with few restrictions. States were required to spend at least 75 percent of their “historic” level of AFDC spending, a 5-year lifetime limit was imposed on receipt of federally-supported cash assistance (some hardship exemptions were allowed), and states had to meet targets for moving recipients into work activities. A combination of these AFDC-TANF changes, the longest economic expansion in history, sharp increases in the earned income tax credit, and other factors contributed to a 52 percent decline in welfare caseloads between January 1993 and December 1999. Despite the weak economy in the years after the recession in 2001, TANF
caseloads have not increased substantially from their historic lows.

Several commentators feared that TANF might set off a “race to the bottom,” where states, fearful of attracting low-income families from other states, might lower benefits, which in turn would cause others states to lower theirs. In fact, total AFDC/TANF spending on cash benefits declined from a peak of about $40 billion in 1995 to about $20 billion in 2006, but this reduction was roughly proportional to the welfare caseload reduction. Spending on other ancillary services (e.g. child care, transportation) for welfare recipients and other low-income families has, in some jurisdictions, also increased since the mid-1990s.

AFDC/TANF is the archetype of cash-based transfers. As expenditures on these programs have fallen, the main work-based transfer, the EITC, grew sharply from 5 billion in 1975 to 45 billion in 2006. $ ^{[11]} $ Most of this growth occurred after 1987; real EITC expenditures grew at an annual rate of 9.1 percent in the 1980s (due to legislated increases in 1986), 12.5 percent in the 1990s (due to legislated increases in 1990 and again in 1993), and 3.0 percent from 2000 to 2005. No other federal antipoverty program grew so rapidly since the mid-1980s. The EITC is now the nation’s largest cash or near-cash antipoverty program.

The incentives embedded in the EITC differ from those in AFDC/TANF. AFDC recipients with no earnings received the largest welfare payments. In contrast, the EITC encourages low-skilled workers to enter the labor market, since nonearners do not receive the credit and the EITC amount rises with earnings up to about the poverty line.
A child tax credit was created in the 1997 Taxpayer Relief Act and has been modified several times since then. Until 2001, the credit provided little financial benefit for poor and near-poor families because of limits on its refundability. Beginning in 2002, the child credit was made at least partially refundable for taxpayers with children. In 2009 the credit was a maximum of $1,000 per child and partially refundable. In particular, fifteen cents of child credit is paid (as a refundable credit) for every dollar earned in excess of $3,000, up to the total available child credit. The credits are phased-out for married couples with income exceeding $110,000 (and $75,000 for single parents).

The safety net for low-income families also includes in-kind benefit programs, the largest of which are food stamps, housing assistance, Head Start, school nutrition programs and the special supplemental nutrition program for women, infants and children (WIC). $ ^{12} $

Food stamps (now known as SNAP – the supplemental nutritional assistance program) are designed to enable low-income households to purchase a nutritionally adequate low-cost diet. It is the single, almost-universal entitlement for those with low income and assets. The maximum monthly food stamp benefit for a family of four was 542 in 2008. $ ^{13} $ Food stamp participation and spending increased sharply between 2000 and 2005. The caseload increased from around 18 million to 30 million; spending increased from about 18 billion to 31 billion (Rosenbaum, 2006).

The Department of Housing and Urban Development and the Farmers Home Administration
are responsible for safety net housing assistance programs. Because these programs have never been entitlements, waiting lists are common. Aid comes in two principal forms: project-based aid, where subsidies are tied to units constructed for low-income households, and household-based subsidies, where renters choose housing units from the existing private housing stock. Since 1982, project-based aid has been curtailed in favor of rental subsidies. Around $39 billion was spent on housing assistance in 2007, serving around 5.1 million recipients in 2007. Federal housing subsidies provide roughly $7,720 in annual benefits per recipient.

The school lunch and breakfast programs are entitlements funded by the Department of Agriculture that provides federal support for meals served by public and private nonprofit elementary and secondary schools and residential child care institutions that enroll and offer free or reduced-price meals to low-income children. Around 10 million children participated in the school breakfast program in 2007. The school lunch program is larger, serving around 31 million children in 2007. Combined expenditures in 2007 were around $11 billion.

The special supplemental nutrition program for women, infants and children (WIC) provides vouchers for food purchase, supplemental food, and nutrition risk screening and related nutrition-oriented services to low-income pregnant women and low-income women and their children (up to age 5). WIC is not an entitlement. In 2007 roughly 8 million women, infants and children received benefits from WIC at a cost of almost $6 billion.

Head Start, an early childhood education program launched as part of the War on Poverty, seeks to improve social competence, learning skills, health and the nutrition status of low-income children so that they can begin school on an equal basis with their more advantaged peers (Jacob and Ludwig, this volume). Spending in 2006 was $7 billion for around 900,000 children.

Figures 3 through 5 summarizes the evolution of means-tested cash transfers to non-disabled,
non-elderly families (in Figure 3), in-kind programs (Figure 4), and all transfers, including social insurance (Figure 5). Figure 3, shows the sharp increase in EITC expenditures beginning in 1986, and the reduction in AFDC/TANF expenditures starting with welfare reform in the mid-1990s. Expenditures on either program never exceed $46 billion annually.

Changes over time in expenditures on in-kind benefits are shown in Figure 4. Expenditures on these in-kind programs never exceed $41 billion. As described above, these programs tend to focus on food, nutrition, and housing.

Figure 5 shows spending on all social insurance programs, which now exceeds 1 trillion annually. It is obvious that social insurance expenditures dwarf expenditures on cash and in-kind transfers to non-disabled, non-elderly households. Social insurance expenditures (in real dollars, excluding workers' compensation due to data limitations) rose at an annual rate of 7.2 percent in the 1970s, 3.3 percent in the 1980s, 2.9 percent in the 1990s, and 4.3 percent between 2000 and 2006. The bottom two lines of Figure 5 show total spending on in-kind transfers (without Medicaid) and cash transfers. Means-tested in-kind transfers (the sum of school nutrition programs, WIC, Head Start, housing assistance, and food stamps) grew at an annual rate of 16.0 percent in the 1970s, 2.1 percent in the 1980s, 2.0 percent in the 1990s, and 5.1 percent between 2000 and 2005. $ ^{14} $ Means-tested cash transfers (the sum of AFDC/TANF, SSI, and the EITC) grew at an annual rate of 3.4 percent in the 1970s, 2.1 percent in the 1980s, 4.2 percent in the 1990s, and fell for the first time in 35 years between 2000 and 2005, despite a weak economy.

The growth rates of both cash and in-kind safety net spending increased significantly in the 1990s relative to the 1980s. In-kind programs continued to increase in the 2000s, while cash
programs shrunk. Spending on cash and in-kind antipoverty programs excluding Medicaid is around $200 billion in 2005. Medicaid is an additional $333 billion in 2005. In the following section, I focus on the largest cash or near-cash programs targeted at non-elderly, non-disabled families and individuals, the EITC.

### 2. The Earned Income Tax Credit

Since it entered the U.S. tax code in 1975, the EITC has been expanded by both Republican and Democratic administrations. Its most rapid growth came in the last 25 years (notably in 1986, 1990 and 1993). The EITC is expected to cost $40.9 billion or about 1 percent of federal spending in 2009. It is the largest cash or near-cash antipoverty program in the U.S. Budget.

To receive the earned income credit, taxpayers file their regular tax return and fill out the six-line Schedule EIC that gathers information about qualifying children. The EITC is refundable, meaning that it is paid out by the Treasury regardless of whether the taxpayer has any federal income tax liability. There are several basic tests for EITC eligibility. The taxpayer must have both earned and adjusted gross income below a threshold that varies by year and by family size. Most EITC payments go to taxpayers with at least one “qualifying child.” A qualifying child needs to meet age, relationship, and residence tests. The age test requires the child to be younger than 19, younger than 24 if a full-time student, or any age if totally disabled. The relationship test requires the claimant to be the parent or the grandparent of the child or for the child to be a foster child. Under the residence test the qualifying child must live with the taxpayer at least six months during the year. Another rule limits the sum of taxable and tax-exempt interest, dividends, net capital gains, rents, royalties, and “passive” income to less than $2,950 (indexed for inflation).
The EITC provides a subsidy to earnings up to a specific income threshold. For example, consider taxpayers with two or more children. The EITC gives a 40 percent earnings subsidy up to 12,570 in 2009. Taxpayers with earnings between 12,570 and 16,420 receive the maximum credit of 5,028. $ ^{15} $ The credit is reduced by 21.06 percent of earnings between 16,420 and 40,295. Hence, there are three distinct ranges of the EITC: the subsidy, flat and phase-out ranges of the credit. The EITC is refundable, meaning that the Treasury pays it whether or not the taxpayer has any other tax liability.

I interpret the weight of the research evidence as suggesting that the EITC is a generally effective, beneficial policy for U.S. low-wage workers. But this view reflects several features of low-wage labor markets in the U.S. that are particularly helpful in enhancing its effectiveness. The EITC might be a less useful tool in countries with different policy environments.

Compared to other OECD countries, the U.S. has few employment regulations that constrain the ability of employers to alter the size of their work force. The U.S. also has a low minimum wage of $7.25 per hour and has few mandated fringe benefits. Consequently, there are few policies that raise the costs of hiring workers above the marginal value of services workers provide. These demand-side factors reduce barriers to hiring low-skill workers and presumably enhance the effectiveness of the EITC in stimulating labor force participation.

The family is the unit of taxation in the U.S. The target efficiency of the EITC is enhanced by limiting it largely to families with incomes below roughly $40,000. Countries whose tax systems are based on individual, rather than family income will find it harder to limit the EITC to low-income families.

The U.S. has a relatively effectively administered and pervasive individual income tax. Consequently, a very large fraction of EITC-eligible families would file tax returns even in the absence of the EITC. $ ^{16} $ This leads to high EITC take-up rates and low administrative costs.
By OECD standards, the U.S. is a low-tax country (only Japan, Mexico, South Korea, and Turkey have ratios of total tax revenue to GDP that are lower), so employment taxes on low-wage workers do not substantially reduce the after-tax wage. While cumulative marginal tax rates in the phase-out range of the credit are high, they do not appear to be so onerously high as to stifle work. $ ^{17} $

Even with these favorable circumstances, the EITC’s positive employment effects are modest. Meyer and Rosenbaum (2001) estimate, for example, that a $1,000 increase in tax credits (in 1996 dollars) would increase employment of single mothers by 4.3 percentage points (from a base of around 65 percent). With these institutional facts in mind, the next section briefly summarizes what is known about the EITC.

### a. Effects of the EITC $ ^{18} $

My discussion of the EITC’s effects covers three broad areas: its targeting and anti-poverty effectiveness, its behavioral effects, and the ability of tax authorities to administer the credit. Targeting and anti-poverty effectiveness

By its structure, the EITC is limited in 2009 to taxpayers with earned income and adjusted gross income less than $40,295 ($43,279) if they have two (three or more) qualifying children, $35,463 if they have one qualifying child, and $13,440 if they have no qualifying children.

Meyer (2009) finds that the EITC lifted the incomes of over 4.5 million people above the poverty line. The majority of EITC payments go to families with children and incomes near and below the poverty line.
The EITC gets high marks for reaching its intended beneficiaries. Scholz (1994) finds that 80 to 86 percent of taxpayers eligible for the EITC appeared to receive it in 1990. Blumenthal, Erard and Ho (2005) find lower take-up rates for eligible households in 1988, while the IRS (2002a) uses non-tax data to estimate somewhat higher take-up rates among eligibles in 1996. There unfortunately are no EITC participation studies for more recent years. Since the time of the earlier studies, the maximum credit increased sharply and the credit extends further up in the income distribution, where filing propensities are very high. The IRS and other organizations have also expanded EITC outreach efforts and 23 states (including the District of Columbia) have adopted EITCs as part of their state income taxes (2 of the state EITCs are not refundable). However, there has been a steady increase in labor force participation of single women with children (Meyer and Rosenbaum, 2000, 2001), and new workers in this group presumably have lower filing propensities than the typical worker in the population because they lack experience with the tax system.

## The EITC’s effect on labor supply and families

Analyses of the effects of the EITC on labor market participation come to a nearly unanimous conclusion: $ ^{19} $ it has a statistically significant and large effect on labor force participation of single women with children. $ ^{20} $ Hotz, Mullin, and Scholz (2005), for example, use matched administrative data from public assistance records, unemployment insurance
records, and federal tax returns for a sample of California residents. Their paper examines four distinct tests of the EITC to isolate its effects on employment. The first test is based on the intuition that if the EITC alters employment, all else being equal, employment rates for two-or-more child families should grow relative to the employment rates of one-child families, as credit amounts available to these groups of families diverged over the 1990s. The second test examines whether or not people eligible for the EITC actually file tax returns and claim it. The third test is based on the intuition that, if the EITC, and not other factors such as the strong economy in the 1990s, is causing employment differences between families with two or more children relative to those with one child, we should expect to see no employment differences (after conditioning on other characteristics) between families with two children and families with three or more children, since the EITC did not change differentially for the latter two groups (the modest increase in the EITC for families with three or more children was not enacted until 2009). The fourth test conditions the sample on those who did not file tax returns and again examines employment changes in the 1990s for families with two or more children relative to families with one child.

Using fixed-effects empirical employment models estimated on a sample of single-parent families, their coefficient estimates are consistent with the EITC having a substantial, positive effect on the employment of families who have used or will use welfare. Specifically, we found the 1993 expansion of the EITC for families with two or more children relative to one-child families increased employment by as much as 3.4 percentage points for families with two or more children, or 11.8 percent of the overall employment gains for this group over the period we studied. This figure is 77 percent of the differential employment gain of families with two or more children, relative to their one-child counterparts.
Studies estimating the effects of the EITC on hours of work for those households that are working find small, negative effects. Liebman (1997) finds no bunching of taxpayers at the beginning and end of the phase-out range, as might be expected if the EITC significantly affects hours and taxpayers are cognizant of the discontinuities in implied marginal tax rates generated by the credit. It is not surprising that negative effects on hours for people already in the labor market are small, since the precise relationship between the EITC and hours worked is likely to be poorly understood by most taxpayers. Most EITC recipients pay a third party to prepare their tax returns, and it is difficult to infer the implicit tax rates embodied in the credit from the lookup table that accompanies the EITC instructions. This confusion is less likely to mitigate positive participation effects, since for these to be operative, taxpayers only need to understand that there is some tax-related bonus to work. Abundant anecdotal evidence indicates that taxpayers have this understanding (see, for example, DeParle, 1999).

Much less is known about the effects of the EITC on other aspects of behavior. There are some signs that the EITC encourages the existence of female-headed families (Dickert-Conlin and Houser, 2002; and Eissa and Hoynes, 2004). Heckman, Lochner, and Cossa (2002) examine the effects of the EITC on skill formation. While they emphasize that much more needs to be done, they reach a tentative conclusion that the EITC has little impact on average skill levels in the economy.

Standard demand and supply models of employment suggest that unless labor demand is perfectly elastic, EITC-induced increases in labor supply will reduce equilibrium wages. The labor supply responses and EITC for those eligible for the credit may result in higher gross incomes, but the EITC may harm the incomes of those not eligible or eligible for only a modest EITC (those are primarily childless couples and individuals in the U.S.). While the identification