Originally passed as a response to the economic crisis of 1974, the program looked to provide assistance in a way that encouraged work through tax credits to working low-income families.
In the early 1970s, President Nixon tried to get his negative income tax plan, the Family Assistance Plan, passed through Congress. The plan was seen as a replacement for Aid to Dependent Families with Children (AFDC) by providing a significant cash benefit to-low income individuals and families through a negative income tax. However, the plan was never passed through Congress. A few years later a much smaller negative income tax, the Earned Income Tax Credit (EITC), was enacted separate from reforming AFDC which was not significantly reformed until 1996.
The credit was originally a temporary provision that was only in effect for one year, 1975. The credits prime objective was “to assist in encouraging people to obtain employment, reducing the unemployment rate, and reducing the welfare rolls.”The credit was equal to 10% of the first $4,000 in earnings which meant the maximum credit amount was $400. The credit phased out between incomes of $4,000 and $8,000. 1
Was seen as an alternative to cash welfare assistance, as it was originally targeted to single mothers. The EITC was extended several times until it became permanent as part of the Revenue Act of 1978 which increased the maximum amount of the credit to $500.
For more on the EITC, see our information sheet here.
For more in-depth information on The EITC over time and current policy proposals fro changes, see here.
Endnotes