Final answer:
The Earned Income Tax Credit (EITC) phases out slowly to mitigate the poverty trap, encouraging employment by decreasing the reduction in benefits as income levels rise.
Step-by-step explanation:
The poverty trap is a situation where increased income leads to a proportional reduction in government support payments, effectively discouraging work. To address this issue, the Earned Income Tax Credit (EITC) is structured to phase out gradually. Under the EITC, as income increases within certain thresholds, benefits are either maintained or decreased minimally. Notably, for a single-parent family with two children in 2013, the EITC does not decrease as income rises from $13,430 to $17,530, but past this, the credit is reduced slowly. For each dollar earned above $17,530, the credit diminishes by 21.06 cents until the income level of $46,227, where the credit is no longer available. This slow phase-out helps mitigate the poverty trap by maintaining some benefits as work income increases, hence incentivizing work while providing support.