The Earned Income Credit and Durable Goods Purchases

From humble beginnings in 1975 as a small program designed to offset the payroll taxes paid by low income workers, the Earned Income Credit (EIC) has grown into a major income support program. In 1996, the EIC transferred a total of $28.8 billion to over 19 million families (IRS 1998).

In contrast to other social programs that transfer benefits evenly over the calendar year, including Supplemental Security Income (SSI), Food Stamps (FS), and Temporary Assistance to Needy Families (TANF), the great majority of EIC benefits are paid during the tax filing period in the calendar year following the year of eligibility. Most EIC benefits are paid in one of two forms: reductions in tax liability that accrue to recipients when taxes are paid (between January 1st and April 15th) or increases in tax refunds that accrue when refunds are received (between the end of January and the end of May). As a result, the one-time payment received is larger than the periodic payments of other income support programs. For example, while the average EIC refund among recipients receiving refunds in 1996 was slightly over $1500, the average AFDC monthly check was $374, and the average monthly SSI benefit was $363 (December) (Committee on Ways and Means 1998).