The Earned Income Tax Credit and the Child Tax Credit Under the Tax Act of 2001

In this article, they analyze the interaction of the earned income tax credit, the child tax credit, and the income tax under the recently enacted tax act for 2001, and the reduction in the EITC marriage penalty that will begin in 2002. The act made the child tax credit partially refundable and introduced a new 10 percent income tax bracket, thereby significantly altering the interaction; they focus attention on the pattern of marginal tax rates generated by the interaction because this pattern is important for incentives and fairness, and conclude that reducing the marginal tax rate should be a high priority for future reform. The act also introduced a more generous schedule for married couples beginning in 2002 to reduce the marriage penalty; they estimate, however, that the act makes only a modest contribution toward reducing the EITC marriage penalty, so that further marriage penalty reduction should also be a high priority for future reform.