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Poverty and InequalitySexual and Reproductive HealthFamily, Maternal & Child HealthMethodology

The rainy day earned income tax credit: A reform to boost financial security by helping low-wage workers build emergency savings

TitleThe rainy day earned income tax credit: A reform to boost financial security by helping low-wage workers build emergency savings
Publication TypeJournal Article
Year of Publication2018
AuthorsHalpern-Meekin, S, Greene, SS, Levin, E, Edin, K
JournalRSF
Volume4
Pagination161-176
Type of ArticleArticle
ISBN Number23778253 (ISSN)
KeywordsEITC, Emergency savings, Financial instability, Income volatility
Abstract

Financial stability depends on emergency savings. Low-wage workers regularly experience drops in income and unexpected expenses. Households with savings absorb these financial shocks but most low-income Americans lack rainy day savings. Therefore, even a small shock, like car repairs, can result in a cascade of events that throws a low-income family into poverty. Nonetheless, existing policies address emergency savings only indirectly. However, the Earned Income Tax Credit (EITC) already functions as an imperfect, makeshift savings tool. This lump sum refund at tax time gives workers a moment of financial slack, but many EITC recipients lack emergency reserves later in the year. By creating a “Rainy Day EITC” component of the existing EITC, policymakers can help low-wage workers build up emergency savings. © 2018 Russell Sage Foundation.