Because of the Earned Income Tax Credit, the effective tax rate for the lowest-income taxpayers in the United States is:

Question

BlackTom AI · Accepted Answer

Because the Earned Income Tax Credit (EITC) is refundable, many very low-income taxpayers end up with a negative effective federal tax rate.

1) Relevant knowledge points and concepts
- The EITC is a refundable tax credit designed to supplement earnings for low-income workers. Refundable means the credit can exceed tax liability and be paid to the taxpayer as a refund.
- Effective tax rate (for this context) = net federal tax paid (after refundable credits) divided by gross (or earned) income; if net tax is a negative number, the effective rate is negative.

2) Step-by-step reasoning
- Compute a taxpayer’s pre-credit federal income tax liability.
- Subtract refundable credits (like the EITC) from that liability. If the credit exceeds liability, the net tax is negative (a net payment to the taxpayer).
- Divide that net tax (a negative dollar amount) by the taxpayer’s income to get the effective tax rate, which will be negative.

3) Example calculation with intermediate steps
- Assume earned income = $10,000.
- Pre-credit federal income tax liability = $200.
- Refundable EITC amount = $1,000.
- Net federal tax = $200 − $1,000 = −$800 (the government pays the taxpayer $800).
- Effective tax rate = net federal tax / income = (−$800) / $10,000 = −0.08 = −8%.

4) Why the correct answer is correct
- The refundable nature of the EITC routinely causes net federal tax to be negative for the lowest-income recipients (credit > tax liability), so the effective tax rate is below zero — i.e., negative.

5) Why the other options are incorrect
- "Only 15 percent" is an arbitrary positive number and not reflective of the EITC effect.
- "Higher than that paid by upper-income taxpayers" is false because the EITC lowers (and can invert) the net tax for low-income taxpayers, making their effective rate much lower than upper-income taxpayers.
- "Zero" is incorrect because the refundable credit often produces a net payment, not merely zero tax.

6) Conclusion
- The effective tax rate for the lowest-income taxpayers, because of the refundable EITC, is negative. This matches the provided answer: negative.

Because of the Earned Income Tax Credit, the effective tax rate for the lowest-income taxpayers in the United States is:Single choice

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