Question

Question 7 1 pts Which of the following is TRUE about the Earned Income Tax Credit (EITC), but not the Minimunt Wage? Incentivizes labor force participation. Raises income for laborers. Benefits are dispersed every paycheck. Theoretically causes unemployment.

Answer 1

Here, option (a) is the correct answer

The Earned Income Tax Credit [EITC] would incentivise the labour force participation as the workers would receive a refundable tax credit along with the wages

                                    Earned Income Tax Credit [EITC] refers to an incentive program in the United States to the low to moderate-income working couples or individuals, particularly for those with children. The amount of the tax credit would depend on the income of the individual and the number of children. The studies have shown that the disbursement of the income tax credit has resulted in the increase of the welfare benefits and the labour force participation of working mothers have been increased by more than 6% over the years. It has helped in increasing the health coverage and has been instrumental in maintaining the health and economic strength of the lower and middle-income group of workers, especially those with children.

                                    The Earned Income Tax Credit [EITC] has now become the nation’s second largest means tested welfare program whose major function remains to provide refundable tax credits to the lower and middle-income aged population of working class. Although the minimum wage policy has been attracting the working class and has been instrumental in increasing the labour participation, there is no scope for incentivising in this particular policy. But the implication of EITC would mean that the labour force participation is getting incentivised and thus the workers would be able to get a refund which will act as an additional income which would improve the participation of workers as clearly indicated by the studies. It would not lead to an increase unemployment as the rate of participation would be improved. The income of the workers are not improved as the wages, but the refund would act as an improvement in the earnings.