Social_Policy

Providing fiscal or tax subsidies to try to promote additional work and saving is a relatively modern notion. These subsidies may stimulate demand by putting more money in the economy, but they are designed primarily to affect behavior through incentives. Modern industrial economies like the U.S. over time have enacted fiscal subsidy programs within three general categories: permanent capital subsidies, temporary capital subsidies, and permanent labor subsidies. Left off the table consistently has been a fourth option that logically completes the list: temporary labor subsidies.

GAO released an analysis on January 11 of Earned Income Tax Credit (EITC) eligibility and participation rates. The study estimates that one fourth of all eligible households do not claim the EITC. However, GAO's study was based on information from two mismatched databases and its conclusions should be taken with a large grain of salt. Given that caveat, the study confirms earlier findings that the participation rate is high - at least 86 percent among families with children.

To sort out the pros and cons of using the tax system to enact social policy goals, in particular to help low-income families, the Urban Institute convened a tax policy forum in Washington, D.C., on June 21, 2001. The discussion revealed that using the tax system as a social policy tool is a much more complex and subtle undertaking than would appear to be the case from many popular announcements. This publication draws on the forum discussion to present an overview of the issues involved in using the tax system to promote social goals.