Tax Credits and Public Benefits: Complementary Approaches to Supporting Low-Income Families

There is increasing recognition that a substantial fraction of the U.S. workforce is employed at jobs that do not pay enough to allow them to provide for all of their families’ basic needs. Government can play an important role in bridging the gap between what these workers can earn and the necessities of life through work supports structured either as public benefit programs such as food stamps and child care vouchers, or as tax credits such as the Earned Income Tax Credit (EITC) and the dependent care tax credit.

For those concerned about low-income families, tax credits have two significant advantages over public benefit programs. From a political perspective, it is often easier to win bipartisan support for expanding tax credits than for public benefits. And from the recipient’s perspective, is it less time consuming and stigmatized to apply for and receive tax credits. However, public benefits are more responsive to families’ changing circumstances and better meet immediate needs. It is also easier to target benefit programs based on non-financial factors.

By understanding the advantages and disadvantages of both mechanisms, advocates and policy makers can better choose the right tool for the job at hand, rather than adopting a one-size fits all approach. Tax credits and public benefits are complementary approaches to supporting low-income families; policy makers do not need to choose between them. Moreover, administrators of public benefit programs can learn important lessons from tax credits about how to ease the burden of applying for and receiving benefits.

To learn more, read this brief by Elizabeth Lower-Basch.