Paycheck Plus: EITC to Adults without Dependents
Introduction
The Paycheck Plus Program provides an expanded earned income tax credit (a.k.a. “Bonus”) to low-income singles who traditionally are not eligible for significant EITC benefits. The credit is worth up to $2,000 per year and is available over three years (2014-2016 fiscal tax years with bonuses paying out in 2015-2017). Miller et al. (2017) calculate the impact of the bonus on income, employment, and after-tax income. Hendren and Sprung-Keyser (2020) translate these estimates into their implied MVPF.
MVPF = 1.0
Net Cost
To calculate costs, Hendren and Sprung-Keyser (2020) need to know how much more money the government paid out in terms of the bonus, other EITC payments, changes in tax revenue, and how much less they paid out in other government programs (e.g. food stamps). Miller et al. (2017) provide an estimate of after tax income for the treatment and control group, along with an estimate of the earnings in the treatment and control group. The difference between the impact on earnings relative to the impact on after-tax income is the net cost to the government of the policy.
In 2014, the impact on earnings is $33 and the impact on after tax income is $654. Hence, the impact on government costs is $621 ($654-$33). In 2015, the cost is $453 ($645-$192). Combining across 2014-2015, the cost to the government of the program is $453+$621=$1,074.
Willingness to Pay
In 2014, the average bonus paid is $1,399 amongst those who take it, and 45.9% of people take it up. However, Miller et al. (2017) find a causal effect of the program on the extensive margin labor supply of 0.9%. This suggests that 0.9% of those people would not have taken it up had the bonus not been offered in 2014. Without specific information about the distribution of earnings amongst the control group, their best estimate is that 45% (45.9% – 0.9%) would have taken up the bonus and received an average bonus of $1,399. This approach implicitly assumes that all responses to the bonus occur on the extensive margin and that those entering the labor force obtain the average bonus size. Given that set-up, the willingness to pay for the control group is given by the transfer in the absence of behavioral responses of $1,399*45% = $630. Repeating this calculation using the data from 2015 yields $1,364 * (34.8% – 2.5%) = $441. Combining across years, the WTP for the first two years of the program is $441+$630 = $1,071.
MVPF Summary
Combining, this suggests an MVPF of 0.996 (=$1,071/$1,074) with a confidence interval of [0.870,1.190], which rounds to 1 under two significant digits.
References
Hendren, Nathaniel and Ben Sprung-Keyser (2020). “A Unified Welfare Analysis of Government Policies.” The Quarterly Journal of Economics, 135(3): 1209–1318. DOI: https://doi.org/10.1093/qje/qjaa006
Miller, Cynthia, Lawrence F. Katz, Gilda Azurdia, Adam Isen and Caroline B. Schultz (2017)., “Expanding the Earned Income Tax Credit for Workers without Dependent Children: Interim Findings from the Paycheck Plus Demonstration in New York City,” (September 14, 2017). New York: MDRC, September 2017, Available at SSRN: https://ssrn.com/abstract=3062085
Policy Features
- Category
- Taxes
- Sub-Category
- Cash Transfers
- Beneficiary Type(s)
- Adults
- Average Age
- 35
- Average Income
- 10534
- Country of Implementation
- United States
- Year of Implementation
- 2013
- Empirical Method
- RCT
- Research Type
- Secondary
- Peer Reviewed
- No
- MVPF Publication Link
- academic.oup.com/qje/article/135/3/1209/5781614