Question

The Earned Income Tax Credit is __________. (LO6) a) a form of welfare b) a refund check paid to the working poor by the Internal Revenue Service c) a very minor form of government aid to the poor d) opposed by both liberals and conservatives

Short answer

The Earned Income Tax Credit is b) a refund check paid to the working poor by the Internal Revenue Service.

Step-by-step solution

Understand the Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is a benefit provided by the federal government for working people with low to moderate income. It reduces the amount of tax owed and may provide a refund if the credit is more than the tax owed. Step 2:

Eliminate Incorrect Options

Read through each option and eliminate choices that do not accurately describe the Earned Income Tax Credit. a) a form of welfare - This option can be eliminated as EITC is not a form of welfare but rather a tax credit. c) a very minor form of government aid to the poor - This option can be eliminated as EITC is not a "minor" form of aid. It is a significant federal benefit and a substantial part of government assistance programs. d) opposed by both liberals and conservatives - This option can be eliminated as both liberals and conservatives generally support the EITC as a means to help low-income workers without creating disincentives to work. Step 3:

Choose the Correct Option

Based on the remaining option not eliminated in the previous step: b) a refund check paid to the working poor by the Internal Revenue Service - This option describes the EITC correctly as a tax credit for working people with low to moderate income which can result in a refund check if the credit exceeds the amount of tax owed. The correct answer is: The Earned Income Tax Credit is \( \underline{b) \ a \ refund \ check \ paid \ to \ the \ working \ poor \ by \ the \ Internal \ Revenue \ Service } \).

Key concepts

Federal Tax Credit

The notion of a federal tax credit is fundamental to understanding how tax systems can be leveraged to provide financial relief to eligible individuals and families. A tax credit, unlike a deduction that reduces the amount of income subject to tax, directly reduces the tax bill on a dollar-for-dollar basis. This can lead to significant savings and, in some cases, a refund if the credit exceeds the tax owed.

An example of such a mechanism is the Earned Income Tax Credit (EITC). It's designed to assist those with low to moderate income by offsetting some of the tax burden and, depending on the situation, facilitating a cash refund. The EITC differs from welfare because it is not just a benefit given irrespective of working status; individuals must be employed and earn income to qualify. This condition strengthens its role as a work incentive rather than solely being an income supplement.

Government Assistance Programs

Government assistance programs encompass a wide array of services intended to support various groups within society who are in need. These programs include but are not limited to housing assistance, food stamps (SNAP), Medicaid, and tax credits like the Earned Income Tax Credit (EITC).

The EITC stands out as a significant part of these programs because it specifically targets the working poor, distinguishing it from other forms of assistance that may not require employment. It acknowledges the effort of low to moderate-income individuals by providing them with financial support through the tax system. Moreover, the EITC is widely supported across the political spectrum, demonstrating a shared belief in its effectiveness in reducing poverty and encouraging work.

Low to Moderate Income Support

Supporting low to moderate income individuals is a crucial aspect of economic policy, aiming to reduce poverty and promote self-sufficiency. One of the key strategies for this support is through tax policies like the EITC. This initiative boosts income, reduces tax liabilities, and can offer a refund to those who qualify based on their earnings and family size.

The impact of the EITC is far-reaching, often pulling families above the poverty line and providing them with additional resources to cover essential living costs. The focus on low to moderate income earners highlights the necessity of targeted financial policies that not only reward work but also ensure that employment translates into an improved standard of living. As a result, the EITC remains a pivotal part of the safety net for the working poor in America.