Reversal of Fortune: New Study Links Tax Expenditures and Mobility
Rosie, an imaginative fifth-grader, tries to distract her mind from hunger pangs as she learns and grows in rural Colorado. Her story is told in the 2013 documentary film A Place at the Table (Movie still courtesy of Participant Media).
Is the American dream dying?
The iconic images of the pioneering frontiersman or the weary immigrant gazing west from Ellis Island hold the same promise—that even if someone's immediate circumstances didn't improve by leaving hearth and home behind, their children have a chance at a better life. It was and is the hope of upward mobility.
A new study by a team of Harvard and U.C. Berkeley economic researchers shows that intergenerational mobility – making more income than your parents - may depend in part on where you live.
Family structure, educational investments, and even income inequality correlate with mobility. But the significant variable—the one that means a child born in Seattle is more likely to move up the income ladder than one in Atlanta—is tax expenditures, specifically the Earned Income Tax Credit (EITC) and Child Tax Credit(CTC). Bread for the World maintains that these tax credits for low-income families are a critical weapon against hunger and must be part of the circle of protection.
In the study’s summary conclusion, the researchers write the following:
What is clear from this research is that there is substantial variation in the United States in the prospects for escaping poverty. There are some areas in the U.S. where a child’s chances of success do not depend heavily on his or her parents’ income. Understanding the features of these areas - and how we can improve mobility in areas that currently have lower rates of mobility - is an important question for future research that we and other social scientists are exploring.
This research should make it clear that members of Congress must keep in place policies that support programs, like the EITC and the CTC, that help create those pathways out of poverty. The tax credits were extended for five years as part of the fiscal cliff deal earlier this year, but are still in danger of being cut. The credits should be made permanent.
As Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.) begin proposing reform in their tax writing committees this year, it remains to be seen how they will treat tax credits for working families. In the Senate Finance Committee, Chairman Baucus and ranking member Orin Hatch (R-Utah) have called for a blank slate and are asking for input from fellow members of Congress.
With automatic cuts already in place, and additional cuts proposed as part of budget negotiations, Bread for the World is urging Congress to take a balanced approach to our fiscal future and protect anti-poverty programs like tax credits for working families. Tax reform must also include the needed revenue to continue these and other programs that support a strong safety net.
For as much elbow grease that has oiled the American dream, sound government policies that set a course for prosperity have laid the foundation for individuals to escape poverty. This study shows that cutting and weakening the EITC and CTC could lead to a new American narrative: a reversal of fortune.
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