The Rainy Day Earned Income Tax Credit: A Reform to Boost Financial Security by Helping Low-Wage Workers Build Emergency Savings

Authors

Sarah Halpern-Meekin
Sara Sternberg Greene, Duke Law SchoolFollow
Ezra Levin
Kathryn Edin

Document Type

Article

Publication Date

2018

Keywords

EITC, 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.

Citation

Sarah Halpern-Meekin et al., The Rainy Day Earned Income Tax Credit: A Reform to Boost Financial Security by Helping Low-Wage Workers Build Emergency Savings, 4 RSF: The Russell Sage Foundation Journal of the Social Sciences 161-176 (2018)

Creative Commons License

This work is licensed under a Creative Commons Attribution-Noncommercial-No Derivative Works 3.0 License.