Franklin Roosevelt and the Forgotten History of the Earned Income Tax Credit

Abstract

On his 1934 income tax return, Franklin Roosevelt claimed an "earned income credit" of $1,400. We usually think of the Earned Income Tax Credit (ETIC) as a subsidy for the poor. This article recovers the original history of the credit back when it was a subsidy for the rich, or at least wealthy taxpayers who earned their wealth through their labor. The purpose of this credit, which lasted up until WWII, was to offset the huge tax preference given to wealthy taxpayers whose income came from capital. The article traces the credit from its inception to its demise and then links it to the current EITC to show some surprising connections between the two credits over time and social change. Both are linked to the foundational tax policy concept of "ability to pay" although in different ways.

Keywords: Income Tax, Franklin Roosevelt, Time Value of Money, Tax Subsidies, Tax Expenditures, Earned Income, Tax Credits, EITC, Tax History

JEL Classification: K34