Low-End Regressivity

Abstract

The earned income tax credit and the child tax credit lift millions of families out of poverty each year, and are found to increase employment and improve health and education outcomes among recipients. Supporters of these programs also ascribe them with reducing average tax burdens for low-income taxpayers and increasing the progressivity of the tax and fiscal system. Although these results are broadly true, expanding the analysis to include those disadvantaged by the programs’ design reveals a more complex story. This Article highlights how structural features of these tax benefits create a distribution of taxes and transfers that disadvantages childless workers and families in deep poverty relative to better-off poor and middle-class families. As a result, relatively poorer taxpayers face higher average tax rates compared to better-off households, a phenomenon this Article defines as “low-end regressivity.” This Article argues that low-end regressivity subverts principal goals of progressive redistribution, reducing the system’s ability to maximize aggregate utility and to combat poverty and inequality. To make this claim, the Article identifies primary progressive goals of redistribution under both welfarist and nonwelfarist paradigms, and demonstrates how low-end regressivity undermines key objectives under diverse distributive justice frameworks. The Article then builds on this analysis by offering policy reforms that seek to reduce low-end regressivity—including eliminating the credits’ floors and phase-ins, and implementing state-level offsetting tax credits.

Keywords: tax credits, EITC, child tax credit, earned income tax credit, federal income tax, welfare