The Earned Income Tax Credit

February 22, 2007

Chairman Hixson and Members of the Committee: 

My name is Ron Haskins and I am a Senior Fellow at the Brookings Institution and a Senior Consultant at the Annie E. Casey Foundation. In a previous life, I was a senior staffer at the Committee on Ways and Means in the U.S. House of Representatives. In this capacity, I worked on the 1996 welfare reform law, several pieces of child support legislation, and legislation that expanded the federal Earned Income Tax Credit (EITC). I am testifying in support of Bill 534, the EITC legislation introduced by Delegates Sandy Rosenberg and Anne Kaiser.

Let me begin with a bit of history. The 1990s saw an unprecedented explosion in the number of previously poor single mothers who entered the labor force and found jobs. As shown in Figure 1, never-married mothers, the group with the least education and job experience, showed the steepest increase in employment. Not surprisingly, there was a simultaneous decline in the number of single mothers receiving welfare payments. Around 2.5 million mothers left the welfare rolls in the 1990s, mostly after the federal welfare reform law passed in 1996. Several state studies show that approximately 70 percent of these mothers found jobs at some time after leaving welfare and that at any given moment about 60 percent of them were working. As a result of this increased employment, Census Bureau records show that the income of single mothers shifted dramatically over the latter half of the 1990s. Specifically, single mothers with incomes under roughly $21,000 increased their earnings every year while their income from welfare (including cash, food stamps, and housing) declined every year. But because the amount they earned from employment greatly exceeded the amount they lost from welfare, by the end of the decade they were better off by about 25 percent in inflation-adjusted dollars (Figure 2). Their greater earnings and income, in turn, led to an impressive 30 percent decline in child poverty. Indeed poverty among both black children and children in female-headed families reached their lowest level ever (Figures 3 and 4) 1.