Final answer:
The tax provision that limits parents from shifting unearned income to their children to minimize tax liabilities is known as the Kiddie Tax. It aims to tax a child's unearned income at the parents' rate to prevent tax avoidance strategies.
Step-by-step explanation:
The tax provision that reduces parents' ability to shift unearned income to children and potentially reduce their tax liabilities is known as the Kiddie Tax. Its purpose is to prevent parents from exploiting their child's lower tax bracket to avoid paying higher taxes on investment income.
The Kiddie Tax applies to unearned income for children under certain age thresholds, taxing this income at the parents' tax rate if it exceeds a certain amount.
Regarding the impact of tax policy on poverty, one measure in the conversation is the Earned Income Tax Credit (EITC). The EITC is a benefit for working people with low to moderate income, designed to encourage work and help lift families out of poverty.
The belief that cutting taxes for the rich will benefit the poor is often called trickle-down economics, which is separate from the mechanisms of the EITC. Nevertheless, the EITC phases out gradually as a person's income increases, which helps to avoid a 'poverty trap' where earning more could result in a loss of government support that's nearly equal to the additional income.