Assets and the Tax Code

Abstract

It is asserted that low-income households could more easily accumulate assets if refundable tax credits were added through the personal income tax. An overview of the earned income tax credit's origins is presented to demonstrate its political implications for establishing an individual development account tax credit. It is subsequently argued that the creation of a tax credit for individual development accounts would complement the earned income tax credit; whereas the earned income tax credit encourages low-income individuals to work, it is claimed that the individual development account tax credit would persuade such individuals to save. Similarities in the functions of individual development account tax credits for poor American families & of individual retirement accounts for middle-class families are noted. A design for creating an individual development account tax credit that is based upon the individual development account section of the 1996 Welfare Reform Act is also presented. 6 Tables, 15 References. J. W. Parker