Question

President A has been defenestrated and YOU have been elected president of City Z! Unfortunately, the economy is not doing so well. You want to encourage more citizens to work, and you already have an existing Earned Income Tax Credit system. How could you re-structure it so that more citizens are encouraged to work, even a little bit?

Answer 1

Introduction Meaning of an Earned Income Tax Credit System: -

An Earned Income Tax Credit System is one wherein, people who are of the working class are rewarded, a percentage of their income as returns so as to support the most vulnerable sections of the society. There are restrictions across most countries wherein only low or moderate earning people receive such credits and post reaching a maximum there is not further deposit in the tax payers’ account. For example, if the overall income of a person is 45000 and a limit of 10% of the total income of a person or 3000$ is set, in that case, the person would receive 3000$ as he reached the max capping. Someone earning 30,000$ in this case would also receive 3000$ and thus the net benefit for both under the scheme would be equal.

Case Details: -

Now, as per the specifics of this case study, we want to encourage more people to work in the existing earned income tax credit system, we could allow higher returns for people and an increase in the percentage of earned income tax is an effective way of making more people to work in the economy. For example, if the Earned Income Tax Credit is capped at 3000$, capping it at a higher level than that would mean, that people in the country believe that they might get additional benefit in terms of government grants, and this may allow them to seek additional work for themselves.

As overall benefit received for workers increase, they are off the view that the working would help them elevate their status relatively quickly and as a result the number of people seeking a job would increase.

Further, another aspect which could be added to the concept is that of minimum hours worked. Unless a person went to work for a fixed number of hours as reported by an employer, his payments towards the Earned Income Tax Credit System would not be paid. This then would force people into working if they wanted to receive this payment.

These are some of the techniques of altering an earned income tax credit system through which the economy can help gain more workers.

Please feel free to ask your doubts in the comments section if any.