This research brief shares findings from new analysis of income data of Black and white households who participate in the Earned Income Tax Credit program, a refundable tax credit that serves as the primary income support for low- and moderate-income families in the United States. The analysis finds that over a 40-year period, the EITC reduced overall income inequality by 5 to 10 percent in the average year, and reduced income inequality between Black and white households at the median and 25th percentile of the income distribution. Although the analysis finds that the EITC effectively reduces inequality for middle- and lower-income households, the program is not effective at closing racial income gaps for very low-income households—those at the 10th percentile of income or lower—and may even widen them.
The authors note that because the EITC is conditioned on a household's employment and work hours, its benefits to Black workers and families may be tempered by persistent structural barriers to employment and labor market discrimination. They also note that take-up of the EITC depends on workers’ awareness of the benefit and the decision to file an income tax return. Community-based organizations and tax assistance programs have an important role in promoting awareness of the EITC and providing tax filing assistance so more eligible families can receive the program’s benefits.