Policy Watch: Tax Credits for Low-Income Workers with Children

The most important tax credits available to low-income households with children are the earned income tax credit (EITC), the child tax credit, and the child and dependent care tax credit (hereafter, child-care credit). Only the EITC and the child-care credit exist in current law in the United States. This note will discuss some equity and efficiency implications of four commonly stated purposes of these credits within the tax/transfer system: greater progressivity, adjustments for the presence of children, greater choice among goods and services, and greater work incentives for low-income individuals.