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Relationship between the EITC and Food Stamp Program Participation Among Households with Children

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Document date: April 01, 2004
Released online: April 01, 2004

The nonpartisan Urban Institute publishes studies, reports, and books on timely topics worthy of public consideration. The views expressed are those of the authors and should not be attributed to the Urban Institute, its trustees, or its funders.

Note: This report is available in its entirety in the Portable Document Format (PDF).


I. Introduction

The federal Earned Income Tax Credit (EITC) and the Food Stamp Program (FSP) are the largest means-tested transfer programs for low-income working parents in the United States. Together, the two programs spend nearly $50 billion per year and comprise the bulk of the social safety net for working poor families. They are central to the strategy for moving welfare recipients to work. The combination of food stamps, EITC, and other supports allow even lowwage workers to raise their families' incomes above the poverty line. But supplements can only achieve a significant anti-poverty impact if people use them. Since 1994, when welfare rolls plummeted and the supplementary contribution of food stamps should have been playing an expanded role, the proportion of eligible families receiving food stamps declined sharply.

The recent reduction in FSP participation rates is not entirely a surprise. The working poor have historically had lower participation rates than the non-working poor, especially those on welfare. One reason is that FSP eligibility comes automatically with welfare receipt but is not automatic for eligible households headed by low-wage workers not on welfare. As the low-income population moved off the welfare rolls and into low-wage jobs, the share of eligible households in the groups least likely to use food stamps increased while FSP eligibles on welfare decreased. From this perspective, the shift in the composition of eligibles explains some of the decline in FSP participation rates. But, from another perspective, why should former welfare recipients have lowered their participation rates? After all, former welfare recipients have received and used food stamps in the past and should be familiar with the workings of the program and with the ability to use the benefits to pay part of their food budget. Yet, in the latter half of the 1990s, only 42-43 percent of former welfare recipients still eligible for food stamps actually participated in the FSP (Zedlewski and Brauner 1999; Zedlewski with Gruber 2001). It is possible that, as Zedlewski and Brauner (1999) point out, low participation rates by former welfare recipients may be, in part, due to misinformation about continued eligibility for food stamps.

Certainly, the expanding economy in the 1990s played a role as discussed in greater detail in Section II. For example, according to a recent study by Ziliak, Gundersen, and Figlio (2001), declining unemployment rates and rising employment accounted for up to 45 percent of the 1994-1998 decline in food stamp participation while changing welfare programs contributed another five to eight percent.

Between 1990 and 1999, federal EITC spending jumped from $9.6 billion to $31.1 billion in 1999 dollars (see textbox below).1 The maximum credit under EITC more than tripled between 1990 and 1999 from $1,215 to $3,816 in 1999 dollars.2 In addition, 17 states have adopted state earned income credits, largely patterned after the federal EITC. Meanwhile, according to Rosso (2001), FSP participation rates declined between 1994 and 1999 from 74 to 57 percent of eligibles (see Figure 1). While the decline in FSP participation rates and the expansion in EITC benefits appear to be related, regression analyses controlling for intervening factors may be able to determine whether this negative correlation is real or spurious.

It is in this context that we hypothesize that the EITC may have an effect on FSP participation rates. Since EITC payments are not counted as income in determining food stamp eligibility, any connection between the EITC and FSP participation must be through the effect of the EITC on the desire of eligible families to participate in the program. Two competing hypotheses may explain the relationship between the EITC and FSP participation. (1) It may be that people who benefit from EITC learn about and understand how government programs can help provide for their families. If this is the case, we would expect that claiming the EITC would be positively correlated with receiving food stamps. (2) On the other hand, expanded EITC benefits may reduce the need for food stamp benefits, causing families not to go through the trouble of obtaining food stamps or suffer any stigma associated with food stamp receipt and use. If this is the case, we would expect a negative correlation between the EITC and FSP receipt.

Notes from this section

1 Committee on Ways and Means, U.S. House of Representatives. 2000a. "Tax Provisions Related to Retirement, Health, Poverty, Employment, Disability and Other Social Issues." In 2000 Green Book, 808-13. Washington, DC: U.S. Government Printing Office. http://aspe.hhs.gov/2000gb/index.htm, (Accesses August 2003).

2 Ibid, 2000a.

Note: This report is available in its entirety in the Portable Document Format (PDF).



Topics/Tags: | Economy/Taxes | Poverty, Assets and Safety Net


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