Reforming the Earned Income Tax Credit and Additional Child Tax Credit to End Waste, Fraud, and Abuse and Strengthen Marriage

The Earned Income Tax Credit is the nation’s second-largest means-tested cash welfare program. Its major function is to provide “refundable” tax credits to low-income individuals. The Additional Child Tax Credit is a second refundable tax credit, available only to families with children. Most families with children that receive the EITC also receive the ACTC.

While the EITC plays an important role in the means-tested welfare safety net, it is rife with problems: fraud and erroneous payments due to false reports of earnings and false residence claims, benefits intended for working parents going to non-parents, very high multi-tier benefits, and discrimination against married couples.

To accomplish their intended missions, the current EITC and ACTC programs must be reformed to eliminate wasteful spending, extensive fraud, and marriage penalties. The reforms proposed in this paper should yield an overall net savings of $15.8 billion per year.

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