The Earned Income Tax Credit (EITC) provides a refundable tax credit to lower-income working families. In 2011, the EITC reached 27.9 million tax filers at a total cost of $62.9 billion. Almost 20 percent of tax filers receive the EITC, and the average credit amount is $2,254 (IRS 2013). After expansions to the EITC in the late 1980s through the late 1990s—under Democrat and Republican administrations—the EITC now occupies a central place in the U.S. safety net. Based on the Census Bureau’s 2012 Supplemental Poverty Measure (SPM), the EITC keeps 6.5 million people, including 3.3 million children, out of poverty (Center on Budget and Policy Priorities [CBPP] 2014a). No other tax or transfer program prevents more children from living a life of poverty, and only Social Security keeps more people above poverty.

Since the EITC is only eligible to tax filers who work, the credit’s impact on poverty takes place through encouraging employment by ensuring greater pay after taxes. The empirical research shows that the tax credit translates into sizable and robust increases in employment (Eissa and Liebman 1996; Meyer and Rosenbaum 2000, 2001). Thus, the credit reduces poverty through two channels: the actual credit, and increases in family earnings. This dual feature gives the EITC a unique place in the U.S. safety net; in contrast, many other programs redistribute income while, at least to some degree, discouraging work. Importantly, transferring income while encouraging work makes the EITC an efficient and cost-effective policy for increasing the after-tax income of low-earning Americans. Yet a program of this size and impact could be more equitable in its reach. Under the current design of the EITC, childless earners and families with only one child, for instance, receive disproportionately lower refunds. 

In 2014, families with two children (three or more children) are eligible for a maximum credit of $5,460 ($6,143) compared to $3,305 for families with one child. Married couples, despite their larger family sizes, receive only modestly more-generous EITC benefits compared to single filers. Childless earners benefit little from the EITC, and have a maximum credit of only $496—less than 10 percent of the two-child credit. 

Prominent proposals seek to mitigate these inequalities. President Obama’s fiscal year 2015 budget includes an expansion of the childless EITC, a concept outlined by John Karl Scholz in 2007 in a proposal for The Hamilton Project. Notably, MDRC is currently evaluating Paycheck Plus, a pilot program for an expanded EITC for workers without dependent children, for the New York City Center for Economic Opportunity (MDRC 2014). The recent Hamilton Project proposal for a secondary-earner tax credit addresses the so-called EITC penalty for married couples (Kearney and Turner 2013). And the more generous EITC credit for three or more children was recently enacted as part of the American Recovery and Reinvestment Act of 2009, and is currently scheduled to sunset in 2017. 

Considering this broad set of EITC reforms, and recognizing the demonstrated effectiveness of the program as an antipoverty program with numerous benefits, this policy memo proposes an expansion for the largest group of  EITC recipients: families with one child. In particular, I propose to expand the one-child schedule to be on par with the two-child schedule, in equivalence scale-adjusted terms. An equivalence scale captures the cost of living for a household of a given size (and demographic composition) relative to the cost of living for a reference household of a single adult, and is a standard component in defining poverty thresholds. The proposal expands the maximum credit for one-child families to $4,641, from $3,305 under current law, an increase of about 40 percent. The expansion will lead to a roughly $1,000 increase in after-tax income for taxpayers in the bottom 40 percent of the income distribution receiving the higher credit. As this paper outlines, the expansion is justified on equity and efficiency grounds. This expansion is anchored in the equity principle in that the generosity of the credit should be proportional to the needs of families of differing sizes; I use the equivalence scale implicit in the poverty thresholds of the Census SPM as a guide for household needs. This proposal is also supported by efficiency principles given the EITC’s demonstrated success at raising labor supply among single mothers. 

The target population for the proposal is low-income working families with children. Implementing this proposal requires legislative action by the federal government; it is important to note that altering the EITC schedule requires a simple amendment to the tax code, and not a massive overhaul of our nation’s tax system. The revenue cost of the proposal derives from additional federal costs of the EITC, less the additional payroll and ordinary federal income taxes. The private benefits include increases in after-tax income and reductions in poverty. The proposal would also generate social benefits through the spillover effects that the increase in income plays in improving health and children’s cognitive skills (Dahl and Lochner 2012; Evans and Garthwaite 2014; Hoynes, Miller, and Simon forthcoming).

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• Building on the Success of the Earned Income Tax Credit - Full Text

British debates about welfare reform have often been influenced by American ideas. The Clinton-era welfare reforms were echoed in some of Tony Blair’s alterations to British benefits. Gordon Brown, as Chancellor, introduced a new Working Tax Credit as a direct result of studying the Earned Income Tax Credit. Brown particularly liked the political advantages of a ‘tax cut for hard-working families’, as opposed to a ‘benefit handout to welfare families’.

But now the transatlantic traffic in ideas on welfare is going the other way. The U.K.’s introduction of a single, unified system of transfer payments – the Universal Credit – is getting quite a bit of attention in the wonkier regions of D.C. politics. Paul Ryan, at a Brookings summit on social mobility, mentioned the Universal Credit (UC) as a possible inspiration for a new round of welfare reform. (Ryan is giving a speech at AEI in a couple of weeks: we’re likely to hear more about his thinking then.) When the architect of the UC, Iain Duncan Smith, visited D.C. recently, he held a series of meetings with leading Republicans to discuss his reforms.

The main attractions of the Universal Credit are fourfold:

1. Simplicity. By unifying five cash benefits and an ‘in kind’ benefit (Housing Benefit) into a single, monthly payment, the complexity of the system from the point of view of the recipient will be greatly reduced.
   
   
2. Cost control. Housing Benefit is paid directly to the landlord, which reduces the tenant’s incentive to control costs.  Add that to the crazily overheated U.K. housing market, and should come as no surprise that Housing Benefit has become a major strain on the system, quintupling in cost in real terms over the last two decades to hit £24 billion a year (c. $41bn), to become the second-biggest element of the U.K.’s system, after pensions.  By including an allowance for housing in the single cash payment in UC, the recipient will be incentivized to control their own housing costs.
    
3. Stronger work incentives. The UC has a flatter ‘taper’ than existing benefits, meaning that cash payments are reduced more slowly as earnings rise. In particular, the UC will allow benefit recipients to work part-time (less than 16 hours a week), and still keep claiming. On the downside, incentives for second earners in two-adult families will be reduced. 
   
   
4. Tighter and more targeted work requirements. The UC will contain stronger requirements to seek work than existing benefits, and importantly, has a ‘sliding scale’ of requirements, depending on the position of the recipient. For example, parents with children under the age of 1 will be exempt from work requirements; those with children aged between  1 and 5 will be obliged to attend for interviews with a case worker to prepare for a return to work; those with children at school will be required to ‘actively seek work’.

Sounds pretty good, doesn't it? And in fact it is, on paper at least. In practice the introduction of UC has been marked with huge overspend and delay on the required new IT system. The whole exercise has also been made much harder by cuts in many of the relevant cash benefits, as well as the introduction of a ‘household cap’ on total welfare receipts. The Universal Credit as an idea has a lot of support. As so often, it has been putting the idea a reality that has been difficult.

What—if anything—can the U.S. take from the UC? Short answer: not much. 

Many of the problems the UC addresses do not really apply in the U.S. Work incentives are already pretty strong in the U.S., thanks to the relative generosity of the EITC, and the relative meanness of out-of-work welfare supports. Also, there are already much stronger work requirements in the U.S. system. Some want to go further, and add work requirements to the receipt of food stamps, for example. But this would not require a major overhaul.  As Melissa Boteach and her colleagues at the Center for American Progress write,“the primary problem that the Universal Credit is supposed to address in the United Kingdom—the lack of incentive for jobless workers to enter the labor force—is far less of an issue in the United States”.

The UC also further centralizes an already highly centralized system, by getting rid of Housing Benefit, which is currently administered by Local Authorities. The U.S. system is much less centralized, with states and cities having a high degree of control over the way TANF and SNAP are administered. It is hard to see how anything like a UC could work in the U.S. at anything higher than State level. A Wisconsin Universal Credit makes sense in a way that a U.S. Universal Credit does not.  But if shifting towards block grants to states is really what this is about (see Marco Rubio’s ‘flex fund’ idea),that’s a whole different debate.

A final point. Simplicity and ease of use for the recipient is a key goal of the UC, and a worthy one. The stress and difficulties faced by low-income families just in applying for assistance is unacceptable in the 21st century. But it is not clear that the whole system has to be upended to achieve this goal. Technology ought to allow a single access point to the system, with the complexity out of sight of the user. 

In the U.K. the Universal Credit has a strong rationale, despite the implementation challenges. In the U.S., it is a solution in search of a problem. 

In the course of my graduate work at Harvard University, I paid hundreds of Americans living in poverty the equivalent of about $2 an hour. It was perfectly legal for me to do so, and my research had the approval of my university’s ethics board. I was not alone, or even unusual, in basing Ivy League research on less-than-Walmart wages; literally thousands of academic research projects pay the same substandard rates. Social scientists cannot pretend that the system is anything but exploitative. It is time for meaningful reform of crowdsourced research.

This is what crowdsourced research looks like. I posted a survey using Mechanical Turk (MTurk), a website run by Amazon.com. Across the country, hundreds of MTurk workers (“turkers”) agreed to fill out the survey in exchange for about 20 cents apiece, and within a few days I had my survey results. The process was easy, and above all, cheap. No wonder it is increasingly popular with academics; a search on Google Scholar returns thousands of academic papers citing MTurk, increasing from 173 in 2008 to 5,490 in 2014.

Mechanical Turk is a bargain for researchers, but not for workers. A survey typically takes a couple minutes per person, so the hourly rate is very low. This might be acceptable if all turkers were people with other jobs, for whom the payment was incidental. But scholars have known for years that the vast majority of MTurk tasks are completed by a small set of workers who spend long hours on the website, and that many of those workers are very poor. Here are the sobering facts:

• About 80 percent of tasks on MTurk are completed by about 20 percent of participants that spend more than 15 hours a week working on the site. MTurk works not because it has many hobbyists, but because it has dedicated people who treat the tasks like a job.
• About one in five turkers are earning less than $20,000 a year.
• A third of U.S. turkers call MTurk an important source of income, and more than one in ten say they use MTurk money to make basic ends meet.

Journal articles that refer to Mechanical Turk. Source: PS: Political Science and Politics

It is easy to forget that these statistics represent real people, so let me introduce you to one of them. “Marjorie” is a 53-year-old woman from Indiana who had jobs in a grocery store and as a substitute teacher before a bad fall left her unable to work. Now, she says, “I sit there for probably eight hours a day answering surveys. I’ve done over 8,000 surveys.” For these full days of work, Marjorie estimates that she makes “$100 per month” from MTurk, which supplements the $189 she receives in food stamps. Asked about her economic situation, Marjorie simply says that she is “poverty stricken.”

I heard similar stories from other MTurk workers—very poor people, often elderly or disabled, working tremendous hours online just to keep themselves and their families afloat. I spoke to a woman who never got back on her feet after losing her home in Hurricane Rita, and another who had barely escaped foreclosure. A mother of two was working multiple jobs, plus her time MTurk, to keep her family off government assistance. Job options are few for many turkers, especially those who are disabled, and MTurk provides resources they might not otherwise have. But these workers that work anonymously from home are isolated and have few avenues to organize for higher wages or other employment protections.

Once I realized how poorly paid my respondents were, I went back and gave every one of my over 1,400 participants a “bonus” to raise the survey respondent rate to the equivalent of a $10 hourly wage. (I paid an additional $15 to respondents who participated in an interview.) This cost me a little bit more money, but less than you might imagine. For a 3-minute survey of 800 people, going from a 20-cent to a 50-cent payment costs an additional $240. But if every researcher paid an ethical wage, it would really add up for people like Marjorie. In fact, it would likely double her monthly income from MTurk.

Raising wages is a start, but it should not be up to individual researchers to impose workplace standards. In this month’s PS: Political Science and Politics, a peer-reviewed journal published for the American Political Science Association, I have called for new standards for crowdsourced research to be implemented not only by individual researchers, but also by universities, journals, and grantmakers. For instance, journal editors should commit to publishing only those articles that pay respondents an ethical rate, and university ethics boards should create guidelines for use of crowdsourcing that consider wages and also crowdsourcers’ lack of access to basic employment protections.

The alternative is continuing to pay below-minimum-wage rates to a substantial number of poor people who rely on this income for their basic needs. This is simply no alternative at all.

This post originally appeared on the TechTank blog.

In the course of my graduate work at Harvard University, I paid hundreds of Americans living in poverty the equivalent of about $2 an hour. It was perfectly legal for me to do so, and my research had the approval of my university’s ethics board. I was not alone, or even unusual, in basing Ivy League research on less-than-Walmart wages; literally thousands of academic research projects pay the same substandard rates. Social scientists cannot pretend that the system is anything but exploitative. It is time for meaningful reform of crowdsourced research.

This is what crowdsourced research looks like. I posted a survey using Mechanical Turk (MTurk), a website run by Amazon.com. Across the country, hundreds of MTurk workers (“turkers”) agreed to fill out the survey in exchange for about 20 cents apiece, and within a few days I had my survey results. The process was easy, and above all, cheap. No wonder it is increasingly popular with academics; a search on Google Scholar returns thousands of academic papers citing MTurk, increasing from 173 in 2008 to 5,490 in 2014.

Mechanical Turk is a bargain for researchers, but not for workers. A survey typically takes a couple minutes per person, so the hourly rate is very low. This might be acceptable if all turkers were people with other jobs, for whom the payment was incidental. But scholars have known for years that the vast majority of MTurk tasks are completed by a small set of workers who spend long hours on the website, and that many of those workers are very poor. Here are the sobering facts:

• About 80 percent of tasks on MTurk are completed by about 20 percent of participants that spend more than 15 hours a week working on the site. MTurk works not because it has many hobbyists, but because it has dedicated people who treat the tasks like a job.
• About one in five turkers are earning less than $20,000 a year.
• A third of U.S. turkers call MTurk an important source of income, and more than one in ten say they use MTurk money to make basic ends meet.

Journal articles that refer to Mechanical Turk. Source: PS: Political Science and Politics

It is easy to forget that these statistics represent real people, so let me introduce you to one of them. “Marjorie” is a 53-year-old woman from Indiana who had jobs in a grocery store and as a substitute teacher before a bad fall left her unable to work. Now, she says, “I sit there for probably eight hours a day answering surveys. I’ve done over 8,000 surveys.” For these full days of work, Marjorie estimates that she makes “$100 per month” from MTurk, which supplements the $189 she receives in food stamps. Asked about her economic situation, Marjorie simply says that she is “poverty stricken.”

I heard similar stories from other MTurk workers—very poor people, often elderly or disabled, working tremendous hours online just to keep themselves and their families afloat. I spoke to a woman who never got back on her feet after losing her home in Hurricane Rita, and another who had barely escaped foreclosure. A mother of two was working multiple jobs, plus her time MTurk, to keep her family off government assistance. Job options are few for many turkers, especially those who are disabled, and MTurk provides resources they might not otherwise have. But these workers that work anonymously from home are isolated and have few avenues to organize for higher wages or other employment protections.

Once I realized how poorly paid my respondents were, I went back and gave every one of my over 1,400 participants a “bonus” to raise the survey respondent rate to the equivalent of a $10 hourly wage. (I paid an additional $15 to respondents who participated in an interview.) This cost me a little bit more money, but less than you might imagine. For a 3-minute survey of 800 people, going from a 20-cent to a 50-cent payment costs an additional $240. But if every researcher paid an ethical wage, it would really add up for people like Marjorie. In fact, it would likely double her monthly income from MTurk.

Raising wages is a start, but it should not be up to individual researchers to impose workplace standards. In this month’s PS: Political Science and Politics, a peer-reviewed journal published for the American Political Science Association, I have called for new standards for crowdsourced research to be implemented not only by individual researchers, but also by universities, journals, and grantmakers. For instance, journal editors should commit to publishing only those articles that pay respondents an ethical rate, and university ethics boards should create guidelines for use of crowdsourcing that consider wages and also crowdsourcers’ lack of access to basic employment protections.

The alternative is continuing to pay below-minimum-wage rates to a substantial number of poor people who rely on this income for their basic needs. This is simply no alternative at all.