Final answer:
The Earned Income Tax Credit (EITC) serves to alleviate the poverty trap by not reducing government support immediately as income rises but begins to phase it out slowly once earnings exceed a certain threshold. In the example given, Susan would face a direct dollar-for-dollar reduction in government benefits which the EITC aims to mitigate for other cases.
Step-by-step explanation:
The student's question pertains to the impact of earned income on government support payments and how the earned income tax credit (EITC) functions to address the poverty trap. For Susan, a single mother with three children earning $8 per hour, the poverty trap is evident as her government benefits are reduced by $1 for every $1 of income she earns. To illustrate this, one would create a table showing the number of hours she works, her earnings from work, the declining level of government support as she earns more, and her total income combining both earnings and government support.
In the case of a single-parent family with two children, the Tax Policy Center outlines that the EITC does not reduce benefits as earnings increase within a certain threshold, but then benefits are reduced by a specified percentage once earnings exceed that threshold. This prevents an immediate decline in benefits that would otherwise disincentivize work and helps minimize the poverty trap issue. The EITC is designed to slowly phase out, rather than abruptly, which serves as a gradual transition from government dependence to self-sufficiency.