Final answer:
The Earned Income Tax Credit (EITC) is a tax credit for low-income working individuals and families to encourage work and reduce dependence on welfare. It operates by increasing the tax credit in proportion to income earned up to a certain level, before phasing it out as incomes rise further, promoting self-sufficiency.
Step-by-step explanation:
The Earned Income Tax Credit (EITC) is a tax credit that provides financial support to low-income working individuals and families, particularly those with children. This credit is meant to encourage and reward work by allowing eligible recipients to keep more of their earnings. The EITC benefits individuals by increasing the payment received for work, effectively raising their income. Not only does it support working families financially, but it also has the intent of making employment more attractive than welfare assistance, therefore contributing to the success of welfare reform.
In response to the question, the correct statement is: C. The EITC incentivizes work by providing tax credits to low-income workers, thus promoting self-sufficiency. This is because the credit increases with the amount of income earned up to a point, before eventually phasing out. For example, in 2013, a single parent with two children would have received a credit of $5,372, and by the 2021 tax year, this amount could be as high as $5,980 for similar circumstances. The EITC loosens the poverty trap and partially disincentivizes welfare by gradually reducing the tax credit as income exceeds the poverty level.