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Research Article
Open Access

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

Sarah Halpern-Meekin, Sara Sternberg Greene, Ezra Levin, Kathryn Edin
RSF: The Russell Sage Foundation Journal of the Social Sciences February 2018, 4 (2) 161-176; DOI: https://doi.org/10.7758/RSF.2018.4.2.08
Sarah Halpern-Meekin
aAssociate professor in human development and family studies at the University of Wisconsin–Madison
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Sara Sternberg Greene
bAssociate professor at Duke University School of Law
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Ezra Levin
cPresident of the board of directors at the Indivisible Project
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Kathryn Edin
cBloomberg Distinguished Professor in Sociology and Public Health at Johns Hopkins University
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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.

  • EITC
  • emergency savings
  • financial instability
  • income volatility
  • © 2018 Russell Sage Foundation. Halpern-Meekin, Sarah, Sara Sternberg Greene, Ezra Levin, and Kathryn Edin. 2018. “The Rainy Day Earned Income Tax Credit: A Reform to Boost Financial Security by Helping Low-Wage Workers Build Emergency Savings.” RSF: The Russell Sage Foundation Journal of the Social Sciences 4(2): 161–76. DOI: 10.7758/RSF.2018.4.2.08. The authors benefited from the input of Miren Beitia (Community Tax Aid), Maria Cancian (University of Wisconsin–Madison), Michal Grinstein-Weiss, Janie Oliphant, and Phillip Poirier (Center for Social Development), Steve Holt (HoltSolutions), Chye-Ching Huang (Center on Budget and Policy Priorities), Clint Key (Pew Charitable Trusts), Justin King and Rachel Black (New America), Yuri Kim (United Way of King County), David Marzahl and Dylan Bellisle (Center for Economic Progress), Robin McKinney (Maryland CASH Campaign), and David Sieminski (Consumer Financial Protection Bureau). Note that the recommendations made in this paper are the authors’ alone and do not necessarily reflect the recommendations of these reviewers. Direct correspondence to: Sarah Halpern-Meekin at sarah.halpernmeekin{at}wisc.edu, School of Human Ecology, 1300 Linden Dr., University of Wisconsin–Madison, Madison, WI 53706; Sara Sternberg Greene at greene{at}law.duke.edu, Duke University School of Law, 210 Science Dr., Durham, NC 27708; Ezra Levin at ezra{at}indivisibleguide.com, 924 Spring Rd NW, Washington, D.C. 20010; and Kathryn Edin at kathy_edin{at}jhu.edu, Department of Sociology, 533 Mergenthaler Hall, 3400 N. Charles Street, Baltimore, MD 21218.

Open Access Policy: RSF: The Russell Sage Foundation Journal of the Social Sciences is an open access journal. This article is published under a Creative Commons Attribution-NonCommercial-NoDerivs 3.0 Unported License.

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RSF: The Russell Sage Foundation Journal of the Social Sciences: 4 (2)
RSF: The Russell Sage Foundation Journal of the Social Sciences
Vol. 4, Issue 2
1 Feb 2018
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The Rainy Day Earned Income Tax Credit: A Reform to Boost Financial Security by Helping Low-Wage Workers Build Emergency Savings
Sarah Halpern-Meekin, Sara Sternberg Greene, Ezra Levin, Kathryn Edin
RSF: The Russell Sage Foundation Journal of the Social Sciences Feb 2018, 4 (2) 161-176; DOI: 10.7758/RSF.2018.4.2.08

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The Rainy Day Earned Income Tax Credit: A Reform to Boost Financial Security by Helping Low-Wage Workers Build Emergency Savings
Sarah Halpern-Meekin, Sara Sternberg Greene, Ezra Levin, Kathryn Edin
RSF: The Russell Sage Foundation Journal of the Social Sciences Feb 2018, 4 (2) 161-176; DOI: 10.7758/RSF.2018.4.2.08
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  • Article
    • Abstract
    • EMERGENCY SAVINGS AND FINANCIAL INSECURITY
    • THE ROLE OF TAX TIME IN PROMOTING FINANCIAL SECURITY
    • EVALUATIONS OF TAX-TIME SAVINGS PROGRAMS
    • THE RAINY DAY EITC PROPOSAL
    • DEMAND FOR RAINY DAY EITC AND ESTIMATED COST
    • DISCUSSION AND ALTERNATIVES
    • CONCLUSION
    • FOOTNOTES
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Keywords

  • EITC
  • emergency savings
  • financial instability
  • income volatility

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