E C O N O M I C R E P O R T O F T H E P R E S I D E N T

Thus, as the typical market basket affordable by most families changes, itmay be appropriate in characterizing the money crunch to expand ournotion of family needs beyond such traditional, basic purchases as food andclothing to the acquisition of certain standard consumption goods like automobilesand telephones. The crunch is even tighter when the rising costs ofeducating children and caring for elderly parents is factored in.Finally, the changing trends in the labor force participation of familymembers have given rise to increasing costs of working outside the home,such as child care, additional work expenses (for meals in restaurants, drycleaning services, and so on), and transportation costs. It is estimated, forexample, that just from 1986 to 1993 direct expenditure on child care rose23 percent, after adjusting for inflation, for families with a preschool-agechild and a working mother.Boosting the Financial Resources of Families to Lessenthe Money CrunchSince 1993, families in each fifth of the income distribution have experiencedsolid and roughly equal percentage gains in income. In part this balancereflects the strong overall performance of the economy, but it alsoreflects a number of specific policies to make work pay for lower incomeworking families facing a money crunch.Expansion of the Earned Income Tax CreditIn 1993 the President signed into law a major expansion of the EarnedIncome Tax Credit (EITC), a refundable credit that is designed to reduce theoverall tax burden of low-income workers. Because it is refundable, workerscan receive the full credit to which they are entitled even if it exceeds theincome tax they owe, and people generally receive the credit as part of theirincome tax refund. The EITC is not currently included in the definition ofmoney income used to compute the official poverty rate. However, calculationsbased on an alternative income concept that does include the EITCshow that the credit lifted more than 4.3 million Americans out of poverty in1998—more than double the number in 1993. The EITC lifted more than2.3 million children out of poverty in 1998. And over 40 percent of thedecline in child poverty (computed using the alternative income concept)between 1993 and 1998 can be explained by progressive tax relief, especiallythe EITC. The President has proposed a major expansion of the EITC in hisfiscal 2001 budget, to make the credit even more effective in rewarding workfor families.Chapter 5 | 185