Chapter 7 identifies a conundrum of the EITC: It is intended to lift low-income individuals out of poverty, yet the credit is subject to capture by a number of creditors and agencies. Because it is delivered as a tax refund, the amount due to the taxpayer can be offset against outstanding federal and state tax liabilities, past-due child support, and federal student loan liabilities. The possibility of such offset betrays its function as an antipoverty supplement. Low-income families are subject to various economic stressors and are likely to have outstanding debts. In reconfiguring the credit into two distinct elements – an incentive to work and an antipoverty supplement – Congress might consider whether the latter should be protected from offset or garnishment (in whole or in part) in order to better serve its purpose. This chapter considers the pros and cons of such a protection, and proposes some possible structures.

Chapter 2 examines how and why the United States chose to deliver the EITC in one annual payment as a tax refund, and how this is a stark contrast to how other social benefits are administered. One reason is administrative cost – it is relatively inexpensive to allow taxpayers to self-declare eligibility and receive benefits as a tax refund. Because other social benefit programs have direct contact with their recipients prior to payment, those programs have far higher administrative costs and far smaller overpayment rates. Delivery of social benefits through the tax system also avoids the stigma associated with applying for benefits through social welfare workers. This chapter cites empirical studies about taxpayer preferences as to delivery method and timing of refund and evidence as to how EITC recipients spend their refund. It also describes experiments with periodic payment, including the Advance Earned Income Tax Credit.