Final answer:
The question revolves around the concept of the poverty trap and the earned income tax credit's role in mitigating it by gradually phasing it out as income increases, thus encouraging work and reducing dependency on benefits.
Step-by-step explanation:
The question deals with the concept of the poverty trap and the policies in place to address it, specifically focusing on the earned income tax credit (EITC). This tax credit aims to support low-to-moderate income working individuals and families, especially those with children. As income increases, the EITC provides an initial boost, but it is eventually phased out at higher income levels to encourage work and reduce dependency on government benefits. The phase-out is intended to be gradual to avoid creating a situation where earning additional income would not be beneficial due to a loss in benefits.
The given example shows that for a single-parent family with two children in 2013, there is no reduction in the credit as earnings rise from $13,430 to $17,530. However, above $17,530, each additional dollar earned results in a reduction of the credit by approximately 21 cents, until the benefit is completely phased out at an income level of $46,227. This mechanism helps to mitigate the poverty trap by ensuring that workers are not discouraged from increasing work hours or seeking higher paying jobs due to a one-to-one reduction in benefits.