oversight

Earned Income Credit: Claimants' Credit Participation and Income Patterns, Tax Years 1990 Through 1994

Published by the Government Accountability Office on 1997-05-16.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                United States General Accounting Office

GAO             Report to the Chairman, Committee on
                Finance, U.S. Senate



May 1997
                EARNED INCOME
                CREDIT
                Claimants’ Credit
                Participation and
                Income Patterns, Tax
                Years 1990 Through
                1994




GAO/GGD-97-69
             United States
GAO          General Accounting Office
             Washington, D.C. 20548

             General Government Division

             B-272879

             May 16, 1997

             The Honorable William V. Roth, Jr.
             Chairman, Committee on Finance
             United States Senate

             Dear Mr. Chairman:

             This report responds to your continuing interest in the Earned Income
             Credit (EIC)—a refundable tax credit available to low-income, working
             taxpayers. As you requested, this report presents data on EIC participation
             and income for EIC claimants that we tracked over a 5-year period.
             Specifically, we analyzed, for tax years 1990 through 1994, EIC claimants’
             patterns of claiming the credit, changes in their income in the years
             following an EIC claim, and their income and filing status after leaving the
             EIC. We also estimated the number of 1994 claimants of the EIC for families
             with children who would and would not have been eligible for the credit in
             1994 if the 1990 maximum income limit was still in effect.


             The EIC is a refundable tax credit available to low-income, working
Background   taxpayers. Congress established the EIC in 1975 to achieve two long-term
             objectives: (1) to offset the impact of Social Security taxes on low-income
             families and (2) to encourage low-income families to seek employment
             rather than welfare.

             EIC eligibility depends on taxpayers’ amount of earned income1 or, in some
             cases, adjusted gross income (AGI).2 Credit amounts depend on the number
             of qualifying children who meet age, relationship, and residency tests. The
             credit gradually increases with increasing income (the phase-in range),
             plateaus at a maximum amount (the plateau range), and then gradually
             decreases until it reaches zero (the phase-out range). Taxpayers with
             earned income or AGI exceeding the maximum qualifying income level are
             not eligible for the credit. Taxpayers with AGI falling in the credit’s


             1
              Earned income for calculating the EIC includes both taxable and nontaxable earned income. For the
             EIC, taxable earned income includes (1) wages, salaries, and tips; (2) union strike benefits;
             (3) long-term disability benefits received prior to minimum retirement age; and (4) net earnings from
             self-employment. Nontaxable earned income includes (1) voluntary salary deferral such as 401(k)
             plans or the federal thrift savings plan, (2) pay earned in a combat zone, (3) basic quarter and
             subsistence allowances from the U.S. military, (4) housing allowances or rental value of a parsonage
             for the clergy, and (5) excludable dependent care benefits.
             2
              In addition to taxpayers’ taxable earned income, AGI includes their taxable income from other
             sources such as investments, alimony, and unemployment compensation. Beginning in tax year 1996,
             taxpayers are to use a newly defined “modified AGI” to determine EIC eligibility and to calculate the
             credit (see app. I for a definition of modified AGI).



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phase-out range are to receive the lesser amount resulting from using their
earned income or AGI in calculating the credit.

During the 5 tax years covered by our analysis, EIC coverage and benefit
rules were modified twice—in 1990 and again in 1993. In the 1990 Omnibus
Budget Reconciliation Act (OBRA), Congress made two major changes to
the EIC that took effect in tax year 1991. These changes (1) adjusted the
credit structure to grant different credit amounts to taxpayers with one
qualifying child and taxpayers with two or more qualifying children and
(2) added two supplemental credits—one for taxpayers with a child under
1 year of age and another for taxpayers who paid health insurance
premiums on policies covering their children. OBRA 1990 also allowed
taxpayers with a filing status of single to claim the credit and specified a
general increase in credit rates that was to be phased-in over a 4-year
period (the planned increase for 1994, however, was superseded by 1993
legislation).

OBRA  1993 made two changes in the credit’s structure that went into effect
in tax year 1994. First, to simplify EIC filing, the act repealed the
supplemental young child and health insurance credits. Second, the act
expanded EIC eligibility to include certain taxpayers without qualifying
children or “childless adults.”3 OBRA 1993 also increased, over a 3-year
period beginning in tax year 1994, the maximum credit for families with
children.

The maximum basic credit amount for EIC families with two or more
children was $953 in tax year 1990, $1,511 in tax year 1993 (reflecting OBRA
1990), and $2,528 in tax year 1994 (reflecting OBRA 1993). The maximum
credit for childless adults in tax year 1994 was $306.

Congress made three additional changes to the EIC in the Personal
Responsibility and Work Opportunity Reconciliation Act of 1996. First,
beginning with tax year 1996 returns, the act makes taxpayers with certain
investment income greater than $2,200 ineligible for the EIC, regardless of
their earned income or AGI. Second, the act created a “modified AGI” to be
used in calculating the credit. Modified AGI disregards certain losses from




3
 These taxpayers may, in fact, be noncustodial parents or may live with a child who, for some reason,
cannot be claimed as an EIC qualifying child. Throughout the report, however, we refer to this group
of EIC claimants as “childless adults” as a simple means to distinguish them from EIC claimants who
have one or more qualifying children. We refer to this latter group as “EIC families with children.”



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                   investments and businesses. And third, the act denies the EIC to filers
                   without valid Social Security Numbers (SSN).4

                   Appendix I contains a more detailed discussion of EIC eligibility and credit
                   calculation rules for tax years 1990 through 1994—the years included in
                   our analysis—as well as for tax years 1995 and 1996.


                   From tax year 1990 through tax year 1994, 27.3 million taxpayers claimed
Results in Brief   the EIC for families with children, at least once.5 They made a total of
                   69 million claims totaling $73 billion (in 1996 dollars). About two-thirds of
                   these taxpayers claimed the credit at least twice during the 5-year period,
                   and about half claimed it in 3 or more of the 5 years.

                   To better understand taxpayers’ patterns of claiming the EIC, we separately
                   tracked tax year 1990 through 1993 claimants in the years following their
                   claims (up to and including tax year 1994) and averaged the results.6 Most
                   EIC claimants, on average, took the credit at least one more time. In the 2
                   years following a claim, for example, about three-quarters of claimants
                   took the credit in at least 1 of the 2 years while the remaining one-quarter
                   did not claim the credit in either of the 2 years. Not only did most
                   taxpayers who claimed the EIC do so more than once, but many took the
                   credit several years in a row. On average, about half of the claimants in a
                   year took the credit in each of the next 2 years (that is, for at least 3
                   consecutive years).

                   Congress designed the EIC, in part, as an incentive for low-income
                   taxpayers to find and keep jobs rather than relying on welfare. We
                   estimated the proportion of EIC claimants who continued to file tax
                   returns, as a proxy for continued participation in the workforce. Using
                   income categories related to the EIC phase-in, plateau, and phase-out


                   4
                    Taxpayers were already required to provide valid SSNs for qualifying children.
                   5
                    Beginning in tax year 1994, the EIC was extended to low-income, working taxpayers who do not have
                   a child meeting the criteria for an EIC qualifying child. About 4 7million taxpayers claimed this type of
                   EIC in tax year 1994, 600,000 (confidence interval ± 18 percent) of whom had claimed the EIC for
                   families with children at some point between tax years 1990 and 1993. These 600,000 taxpayers are
                   included in the 27.3 million figure.
                   6
                    Throughout this report, we present average percentages for 1, 2, 3, and 4 years after a claim. Because
                   our data included only tax years 1990 through 1994, however, the basis for each estimate is different.
                   The estimates for the first year after a claim are averages based on 53.6 million claims made in tax
                   years 1990 through 1993; estimates for the second year after are averages based on 39.1 million claims
                   made in tax years 1990 through 1992; estimates for the third year after are averages based on
                   25.5 million claims made in tax years 1990 and 1991; and estimates for the fourth year after are based
                   only on 12.1 million tax year 1990 claims.



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                     ranges, we also estimated the extent to which claimants reported higher or
                     lower income in later years.7 We found that most EIC claimants continued
                     to file a return over the 4 years following a claim—91 percent filed a return
                     in the first year, and 82 percent did so in the fourth year. On average, in the
                     first and fourth years after a claim, respectively, 25 and 36 percent of
                     claimants reported higher income while 21 and 29 percent reported lower
                     income or did not file a return.

                     When we tracked taxpayers who at some point stopped claiming the EIC,
                     we found that most filed a return in the first and second consecutive years
                     of not claiming the credit, but about one-third did not. Among taxpayers in
                     their first year not claiming the EIC, almost equal proportions reported
                     income within the EIC range and above the EIC limit. Among taxpayers in a
                     second consecutive year not claiming the credit, the proportion of those
                     reporting income above the EIC limit increased. About 40 percent of
                     taxpayers who filed a return in the first year they stopped claiming the EIC
                     also reported a change in filing status—predominantly from head of
                     household status to single or married filing jointly.

                     To qualify for the EIC in tax year 1990, taxpayers needed to have at least
                     one qualifying child and reported income less than $23,750 (in 1994
                     dollars). If this maximum income limit would have applied in tax year
                     1994, about 2 percent of 1994 claimants of the EIC for families with
                     children would not have been able to claim the credit because of income
                     above the eligibility threshold. These taxpayers claimed about $48 million8
                     in EIC in 1994, or about 0.2 percent of the total EIC for families with
                     children that year.


                     Our objectives were to (1) develop longitudinal data on taxpayers’
Objectives, Scope,   patterns of claiming the EIC, changes in EIC claimants’ income in the years
and Methodology      after an EIC claim, and claimants’ income and filing status after leaving the
                     EIC and (2) estimate the number of 1994 EIC claimants who would and
                     would not have been eligible for the credit if the 1990 EIC maximum
                     income limit was still in effect.




                     7
                      Throughout the report, “reported income” refers to either EIC earned income or AGI. For taxpayers
                     claiming the EIC, our income measure for that year was the actual income used to determine the
                     credit—either EIC earned income or AGI. For tax years in which taxpayers did not claim the credit,
                     and therefore did not report an EIC earned income amount, we used reported AGI as our income
                     measure.
                     8
                      Confidence interval is ± 27 percent of the reported value.



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We obtained and analyzed the Internal Revenue Service’s (IRS) Statistics of
Income (SOI) individual income tax databases for tax years 1990 through
1994, the most recent 5 years of data available at the time we began our
work. Each SOI database contains tax return information for a random
sample of taxpayers. Included in this sample are a subsample of taxpayers
who are included every year in which they file. From these longitudinal
records, we created a database of taxpayers who claimed the EIC in any 1
of the 5 years.9 To get additional information on taxpayers who were not
included in the SOI sample in certain years, we asked IRS to match SSNs for
those taxpayers to primary and secondary (spouse) SSNs on the individual
masterfile (IMF). From this match, done in December 1996, we determined
if the taxpayer had not filed a return for the year in question, had filed as a
secondary filer on a joint return, or had filed too late to be included in the
SOI database. For those who had filed, we were able to obtain the AGI and
EIC amount, if any.


To identify patterns of claiming the EIC, we determined the years on and
off the EIC for each taxpayer in our database. We used this participation
data to estimate the percentage of EIC claimants who, over the 5-year
period, claimed the credit for 1, 2, 3, 4, or 5 years. To provide specific data
on EIC participation patterns, we estimated the proportion of EIC claimants
in each year who, in the 1 to 4 years following a claim, (1) claimed the
credit at least once more, (2) did not claim the credit again, or
(3) continued to consecutively claim the credit. We averaged the results
for 1 to 4 years after a claim across relevant tax years.

To track changes in the income of EIC claimants in the years after an EIC
claim, we used a series of income categories corresponding to the EIC
income ranges for each tax year and ranges for income above the EIC limit.
We then estimated the average proportion of EIC claimants whose income
stayed in the same range or moved among ranges in the years after an EIC
claim.

To describe the status of EIC claimants who at any point stopped claiming
the credit between 1990 and 1994, we determined, for the first and second
consecutive years off the credit, the proportion of former claimants who
(1) reported AGI either above or below the EIC limit, (2) claimed no
dependent exemptions, or (3) reported a change in filing status from the
year in which the EIC was claimed to the year the credit was not claimed.
We also determined the proportion who did not file a return.

9
 Estimates of EIC claims and amounts from SOI data may differ from what taxpayers actually receive.
IRS examinations and other actions may make the actual EIC amount granted to a taxpayer different
from the amount claimed on the tax return.



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Our analyses of consecutive years claiming and not claiming the credit and
changes in reported income were based on tracking EIC claimants in the
years following an EIC claim. For this type of analysis, we made separate
estimates for tax year 1990, 1991, 1992, and 1993 claimants and combined
the results across all years. For example, the average for EIC participation
or income the first year after a claim is based on claims first made in tax
years 1990, 1991, 1992, and 1993; estimates for the second year after a
claim are based on claims first made in tax years 1990, 1991, and 1992.
Estimates for the third year after a claim are based on claims made in tax
years 1990 and 1991; estimates for the fourth year after a claim are based
only on tax year 1990 claims.

To estimate the number of 1994 claimants of the credit for families with
children who would and would not have been eligible for the credit if the
1990 EIC maximum income limit was still in effect, we indexed the 1990 EIC
phase-in, plateau, and phase-out cutoffs to 1994 dollars and applied the
indexed cutoff points to the 1994 EIC claimants’ reported income. We also
estimated the amount of 1994 EIC claims made by claimants who reported
income above the indexed 1990 EIC limit.

All data presented in this report are estimates based on the SOI longitudinal
sample. Accordingly, we calculated confidence intervals at the 95-percent
confidence level to indicate the precision of the estimates included in the
body of the report. Unless otherwise noted, the confidence intervals for
percentages are less than ± 5 percentage points and for other statistics are
less than ± 10 percent of the reported value. A more detailed explanation
of our scope and methodology is included in appendix II. Detailed data
tables supporting our findings are included in appendix III.

We did our work in Washington, D.C., from June 1996 to March 1997 in
accordance with generally accepted government auditing standards. We
requested comments on a draft of this report from the Commissioner of
Internal Revenue or her designee and from officials at the Department of
the Treasury. The IRS National Director of Legislative Affairs responded in
an April 21, 1997, letter saying that the agency agreed with the draft report.
Economists from the Department of the Treasury’s Office of Tax Analysis
provided oral comments that were technical in nature and involved
presentation and definitional issues. We made changes to the report where
appropriate.




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                     The number of taxpayers claiming the EIC and total program costs
EIC Participation    increased steadily between tax years 1990 and 1994. In large part, this
Increased Steadily   growth reflects the impact of either eligibility or benefit expansions
From Tax Year 1990   implemented in tax years 1991 and 1994. Beginning in tax year 1991,
                     taxpayers were able to take advantage of the supplemental young child
Through Tax Year     and health insurance credits, separate credit rates for larger families, and
1994                 an increase in the basic credit. In tax year 1994, repeal of the supplemental
                     credits went into effect, but a childless adult credit and another general
                     increase in credit amounts for families with children were available.

                     As shown in figure 1, both the number of taxpayers claiming the credit and
                     EIC program costs (in 1996 dollars) increased steadily from tax years 1990
                     through 1994. Overall, 30.7 million taxpayers claimed the EIC at least once
                     between tax years 1990 and 1994. They made a total of 72.2 million EIC
                     claims totaling $74 billion (in 1996 dollars) over the 5-year period. Among
                     the tax year 1994 claimants were 4 million taxpayers who claimed the EIC
                     for childless adults, 600,00010 of whom had previously claimed the credit
                     for families with children at least once between 1990 and 1993.




                     10
                       Confidence interval is ± 18 percent of the reported value.



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Figure 1: EIC Costs and Number of
Claims, Tax Years 1990 Through 1994
                                      Claims (millions)                                                  Costs (1996 dollars in billions)
                                      50                                                                                                 25
                                                                                                                                         25

                                                                                                                                  22

                                      40                                                                                                 20
                                                                                                                                         20




                                      30                                                                                                 15
                                                                                                                                         15




                                      20    9                                                                                     19     10
                                                                                                                                         10


                                            12
                                      10                                                                                                 55




                                       0                                                                                                 00
                                           1990                 1991                  1992                 1993                   1994

                                           Tax year

                                                      EIC costs in constant 1996 dollars
                                                      Number of taxpayers claiming EIC




                                      Source: GAO analysis of SOI data.




                                      Many taxpayers who claimed the EIC did so more than once. As shown in
                                      figure 2, from 1990 through 1994, about two-thirds of the 27.3 million
                                      taxpayers who claimed the EIC for families with children at least once,11
                                      claimed the credit two or more times. About half of the 27.3 million
                                      taxpayers claimed the credit for 3 or more of the 5 years.




                                      11
                                        These 27.3 million taxpayers made 68.8 million claims in tax years 1990 through 1994. The claims
                                      totaled $73 billion in 1996 dollars.



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Figure 2: Number of Years the EIC Was
Claimed in a 5-Year Period by
                                        Percentage of claimants
Taxpayers Who Claimed the EIC for
Families With Children at Least Once    35
in Tax Years 1990 Through 1994
                                                    32

                                        30



                                        25
                                                                    22

                                        20
                                                                                    17
                                                                                                                    16
                                        15
                                                                                                    13


                                        10



                                         5



                                         0
                                                   1 of 5         2 of 5           3 of 5          4 of 5          5 of 5

                                                                                                               16% claimed
                                                                                                               all 5 years

                                                                                                29% claimed at least 4 years

                                                                               46% claimed at least 3 of the 5 years

                                                               68% claimed at least 2 of the 5 years
                                                 Number of years claiming the EIC




                                        Note: Percentages are based on 27.3 million taxpayers who claimed the EIC for families with
                                        children at least once between tax years 1990 and 1994. Because the childless adult credit was
                                        only available for 1 of our 5 years, this figure excludes the 3.4 million taxpayers who claimed only
                                        the childless adult credit in tax year 1994.

                                        Source: GAO analysis of SOI and IMF data.




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                    To better understand taxpayer’s patterns of claiming the EIC, we separately
EIC Participation   tracked tax year 1990 through 1993 claimants in the years following their
Patterns            claims and averaged the results.12 We found that most EIC claimants, on
                    average, took the credit at least once more. In the 2 years following a
                    claim, for example, about three-quarters of the claimants took the credit in
                    at least 1 of the 2 years while the remaining one-quarter did not claim the
                    credit in either of the 2 years. Not only did most taxpayers who claimed
                    the EIC do so more than once, but many took the credit several years in a
                    row. On average, about half of all claimants in a year took the credit in
                    each of the following 2 years (that is, for at least 3 consecutive years).
                    These participation patterns are reflected in figures 3 and 4.




                    12
                     Throughout the report, we present average percentages for 1, 2, 3, and 4 years after a claim. Because
                    our data included only tax years 1990 through 1994, however, the basis for each estimate is different.
                    The estimates for the first year after a claim are averages based on 53.6 million claims made in tax
                    years 1990 through 1993; estimates for the second year after are averages based on 39.1 million claims
                    made in tax years 1990 through 1992; estimates for the third year after are averages based on
                    25.5 million claims made in tax years 1990 and 1991; and estimates for the fourth year after are based
                    only on 12.1 million tax year 1990 claims.



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Figure 3: Percentage of EIC Claimants
Who Did and Did Not Claim the Credit
                                        Average percentage of claimants
Again, 1 to 4 Years After a Claim
                                        100


                                                                                                             83
                                                                                           81
                                         80                              78
                                                   73



                                         60



                                         40

                                                              27
                                                                                    22
                                         20                                                       19
                                                                                                                         17




                                          0
                                                        One                   Two            Three                Four

                                              Years after an EIC claim

                                                              Claimed the EIC at least once more
                                                              Did not claim the EIC again in the intervening years




                                        Note: The first year average is based on 53.6 million claims made in tax years 1990 through 1993;
                                        the second year average is based on 39.1 million claims made in tax years 1990 through 1992;
                                        the third year average is based on 25.5 million claims made in tax years 1990 and 1991; and the
                                        fourth year percentage is based on 12.1 million tax year 1990 claims.

                                        Source: GAO analysis of SOI and IMF data.




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Figure 4: Percentage of EIC Claimants
Who Took the Credit for 2 to 5          Average percentage claiming the EIC consecutively
Consecutive Years
                                        80
                                                      73




                                        60
                                                                        56



                                                                                            44

                                        40
                                                                                                              36




                                        20




                                         0
                                                  Two or more     Three or more        Four or more          Five

                                                  Consecutive years claiming the EIC




                                        Note: The 2 consecutive year average is based on 53.6 million claims made in tax years 1990
                                        through 1993; the 3 consecutive year average is based on 39.1 million claims made in tax years
                                        1990 through 1992; the 4 consecutive year average is based on 25.5 million claims made in tax
                                        years 1990 and 1991; and the 5 consecutive year percentage is based on 12.1 million tax year
                                        1990 claims.

                                        Source: GAO analysis of SOI and IMF data.



                                        Congress designed the EIC, in part, as an incentive for low-income
Changes in EIC                          taxpayers to find and keep jobs. We tracked EIC claimants’ reported
Claimants’ Income in                    income in the years following a claim to estimate the extent to which their
the Years Following a                   reported income changed among EIC income ranges or moved above the
                                        EIC maximum income limit. As a proxy for continued participation in the
Claim                                   workforce, we also estimated the proportion of EIC claimants who
                                        continued to file returns, while recognizing that the filing of a return does
                                        not necessarily mean that the taxpayer was working.




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                                     The range of eligible income for the EIC is fairly broad. For tax year 1994
                                     claimants with two or more qualifying children, for example, the phase-in
                                     range included reported income below $8,400 while the phase-out range
                                     included reported income up to $25,295. Table 1 shows the tax year 1990
                                     through 1994 EIC income ranges for claimants with children that were used
                                     in our analysis.13 For tax year 1994, about 60 percent of claimants with
                                     qualifying children reported income in the phase-out range and 27 percent
                                     reported income in the phase-in range.

Table 1: EIC Income Ranges for Tax
Years 1990 Through 1994                                                                       EIC income range
                                     Tax year                             Phase-in                     Plateau                  Phase-out
                                     1990                               $1 - $6,799          $6,800 - $10,749          $10,750 - $20,263
                                     1991                               $1 - $7,099          $7,100 - $11,249          $11,250 - $21,249
                                     1992                               $1 - $7,499          $7,500 - $11,849          $11,850 - $22,369
                                     1993                               $1 - $7,749          $7,750 - $12,199          $12,200 - $23,049
                                     1994 families with one
                                     qualifying child                   $1 - $7,749          $7,750 - $10,999          $11,000 - $23,754
                                     1994 families with two or
                                     more qualifying children           $1 - $8,399          $8,400 - $10,999          $11,000 - $25,295
                                     Source: IRS EIC tables.



                                     Figure 5 shows, for the 4 years following a claim, the extent to which
                                     claimants’ reported income changed and the proportion of claimants who
                                     did not file a return. The largest group of claimants in each year are those
                                     who continued to report income in the same EIC range, although the
                                     proportion declined over the 4 years. The proportion of claimants
                                     reporting income in a higher EIC range or above the EIC limit increased, as
                                     did the proportion of claimants who did not file a return. On average, in
                                     the first and fourth years after a claim, respectively, 25 and 36 percent of
                                     claimants reported higher income while 21 and 29 percent reported lower
                                     income or did not file a return.




                                     13
                                      See app. I, tables I.1 through I.5 for the phase-in rates, maximum credit amounts, and phase-out rates
                                     associated with each income range.



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Figure 5: Changes in EIC Claimants’ Reported Income Relative to EIC Income Ranges, From 1 to 4 Years After an EIC Claim

Average percentage of EIC claimants

60
                                                             55


50
                                                                  45

                                                                       40
40
                                                                            36


30




20                          18                                                                          18                          18
                     16                                                                       16   16                          16
                                                                                       15
                                                                                                                         14
              13                        13
                                   12        12
                                                  11
                                                                                                                   10
10       9




0
             Did not file               Lower                      Same                       Higher                    Over EIC limit
                                                             EIC income range


        Number of years after a claim

                   1 year later
                   2 years later
                   3 years later
                   4 years later

                                                  Source: GAO analysis of SOI and IMF data.




                                                  Figures 6 and 7 show similar income patterns for phase-in and phase-out
                                                  range claimants separately. Among both subgroups of claimants over the
                                                  4-year period after a claim, the largest proportion continued to report
                                                  income in the same income category while the proportion of claimants
                                                  reporting higher income and the proportion not filing a return increased.




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Figure 6: Changes in Income for EIC Claimants Who Claimed the Credit With Reported Income in the Phase-in Range

Average percentage of phase-in range claimants
60




50                                  48



40
                                         37


                                              31
30                           28
                      27
                                                    26                                                      26
               23
                                                                                                      21
20       19
                                                               18                                18
                                                                    17
                                                                         14
                                                                                           13
                                                                               11
10                                                                                                                                       9
                                                                                                                                    7
                                                                                                                               5
                                                                                                                        3

 0
              Did not file             Phase-in                      Plateau                    Phase-out                   Over EIC limit
                                     (same range)
                                                               EIC income range

        Number of years after a claim

                    1 year later
                    2 years later
                    3 years later
                    4 years later




                                                   Note: Totals for each year after a claim may not add to 100 percent due to rounding.

                                                   Source: GAO analysis of SOI and IMF data.




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Figure 7: Changes in Income for EIC Claimants Who Claimed the Credit With Reported Income in the Phase-Out Range

Average percentage of phase-out range claimants
80



                                                                                            66


60
                                                                                                 56

                                                                                                      51
                                                                                                            49



40




                                                                                                                                    24    25
                                                                                                                              21
20
                                                                                                                        16
                            12
                      10                      9      9
               7                   7     8                       8    8    7
                                                                                5
         3
 0

             Did not file               Phase-in                     Plateau                  Phase-out                      Over EIC limit
                                                                                             (same range)
                                                               EIC income range
        Number of years after a claim

                   1 year later
                   2 years later
                   3 years later
                   4 years later




                                                   Note: Totals for each year after a claim may not add to 100 percent due to rounding.

                                                   Source: GAO analysis of SOI and IMF data.




                                                   Although a larger percentage of phase-in range claimants changed income
                                                   categories in later years compared to phase-out range claimants, for EIC
                                                   families with children, the phase-in range is considerably narrower than
                                                   the phase-out range. On average, then, claimants in the phase-in range may



                                                   Page 16                                                   GAO/GGD-97-69 Earned Income Credit
                       B-272879




                       have needed a smaller dollar change in income to move out of their range.
                       Also, it was possible for a taxpayer to report the same income in two
                       different tax years but have that income fall into two different EIC ranges
                       because of inflation adjustments and legislative action in 1993. For
                       example, the 1990 phase-in range included income under $7,710 in 1994
                       dollars; the 1994 phase-in range included income under $7,750 for families
                       with one qualifying child and under $8,400 for families with two or more
                       qualifying children.14


                       To describe the status of EIC claimants who at any point stopped claiming
Taxpayers Who          the credit between 1990 and 1994, we tracked claimants’ income in the
Stopped Claiming the   first and second consecutive years off the credit. As shown in figure 8, in
EIC                    their first and second consecutive years off the EIC, most former claimants
                       filed a return, but about one-third did not. Almost equal proportions of
                       taxpayers in their first year off the credit reported AGI within the EIC
                       income range, reported AGI above the EIC income limit or did not file a
                       return. Among taxpayers who did not claim the credit for a second
                       consecutive year, the proportion of those reporting AGI above the EIC
                       income limit increased as did the proportion not filing.




                       14
                        Differences in income range parameters were most noticeable from tax year 1993 to 1994. OBRA
                       1993 narrowed the plateau range and increased the phase-out range at both the upper and lower ends.
                       The differences from 1990 through 1993 were much smaller. (See table 1.)



                       Page 17                                                   GAO/GGD-97-69 Earned Income Credit
                                        B-272879




Figure 8: EIC Claimants’ Reported AGI
in the First and Second Consecutive
                                        Average percentage of claimants leaving the EIC
Years Off the EIC
                                        50




                                        40                                            39
                                                                                 36
                                                                                                             35
                                                   32                                             32
                                        30
                                                            26



                                        20




                                        10




                                         0
                                               In EIC income range     Above EIC income limit      Did not file
                                               Reported AGI

                                                        First year off the EIC
                                                        Second consecutive year off the EIC




                                        Source: GAO analysis of SOI and IMF data.




                                        Taxpayers can stop claiming the EIC for a variety of reasons: (1) their
                                        income is above the eligibility threshold; (2) they are unable to claim a
                                        qualifying child; (3) they do not claim the credit, although they are
                                        qualified; (4) they leave the workforce; or (5) they do not file a return. We
                                        were unable to determine, however, which reasons applied to the
                                        taxpayers in our analysis who stopped claiming the EIC. Although we did
                                        not have data on qualifying children for taxpayers who did not claim the
                                        credit, we did have data on reported dependent exemptions. In the first
                                        year off the EIC, 9 percent of the taxpayers reporting AGI under the EIC limit
                                        did not claim any dependent exemptions. In the second consecutive year
                                        off the EIC, 11 percent of those reporting AGI under the EIC limit did not
                                        claim a dependent exemption. However, having no dependents would not
                                        have necessarily disqualified someone from claiming the EIC because it




                                        Page 18                                                 GAO/GGD-97-69 Earned Income Credit
                                        B-272879




                                        was possible to claim a child who was not a dependent as an EIC qualifying
                                        child.

                                        Changes in filing status, while generally not affecting EIC eligibility directly,
                                        could also play a role in determining whether a taxpayer can claim the
                                        credit. For example, a head of household EIC claimant who marries may
                                        then have a combined income above the EIC limit. The majority of
                                        taxpayers who stopped claiming the EIC and still filed a return reported the
                                        same filing status—62 percent in the first year off the EIC and 58 percent
                                        among those in the second consecutive year off. The remainder reported a
                                        change in filing status that coincided with leaving the EIC. As shown in
                                        table 2, a change from head of household status to single or married
                                        accounted for most of the taxpayers who reported a change in filing
                                        status. Almost all of the head of household EIC claimants whose filing
                                        status changed to single or married filing separately continued to report
                                        AGI under the EIC limit. Conversely, most of those whose filing status
                                        changed to married filing jointly reported income above the EIC limit.

Table 2: Filing Status Changes From a
Year in Which the EIC Was Claimed to                                             Filing status in the first year off the EIC
the First Year Off the EIC              Filing status in the                                           Married
                                        year of the EIC                               Married             filing        Head of
                                        claima                        Single     filing jointly      separately       household        Total
                                        Head of household                  48%               30%                 5%                      83%
                                        Married filing jointly               5                                   6                1      13%
                                        Single                                                 2                 0                1       3%
                                        Widow(er)                            0                 0                 0                1       1%
                                        Total                              54%               32%               11%                3%    100%
                                        Note 1: Percentages are based on approximately 3.8 million departures from the EIC that
                                        coincided with a filing status change.

                                        Note 2: Percentages may not add to totals due to rounding.
                                        a
                                        Taxpayers with a filing status of married filing separately are ineligible for the EIC.

                                        Source: GAO analysis of SOI and IMF data.




                                        Page 19                                                       GAO/GGD-97-69 Earned Income Credit
                                      B-272879




                                      To qualify for the EIC in tax year 1990, taxpayers needed to have at least
Tax Year 1990                         one qualifying child and reported income of less than $23,750 (in 1994
Maximum Income                        dollars). As shown in table 3, if this income limit had applied to tax year
Limit Applied to Tax                  1994 claimants of the EIC for families with children, about 2 percent of
                                      those who claimed the credit for families with children in tax year 1994
Year 1994 Claimants                   would not have been able to claim the credit because of income above the
of the EIC for                        eligibility threshold. These taxpayers claimed about $48 million15 in EIC in
                                      1994, or 0.2 percent of the total EIC for families with children that year.
Families With
Children
Table 3: Distribution Among EIC
Income Ranges for 1994 Claimants of                            Tax year 1994 EIC claimants               Tax year 1994 EIC claimants
the EIC for Families With Children                            using the 1994 eligibility rules          using the 1990 eligibility rulesa
Using 1994 and 1990 Income Limits                                  Number of                                 Number of
                                                                    1994 EIC                                  1994 EiC
                                                                families with                             families with
                                      EIC income                  children (in      Percentage of           children (in   Percentage of
                                      range                         millions)           claimants             millions)        claimants
                                      Phase-in                              3.9                 26.7%               3.9              27.1%
                                      Plateau                               2.1                 14.3                3.1              21.5
                                      Phase-out                             8.6                 59.0                7.1              49.1
                                      Above phase-out
                                      point                                                                         0.3               2.4
                                      Total                                14.5               100.0%               14.5             100.0%
                                      Note: Numbers and percentages may not add to totals due to rounding.
                                      a
                                       1990 range breakpoints were indexed to 1994 dollars using the consumer price index for all
                                      urban consumers (CPI-U) as reported by the Bureau of Labor Statistics and EIC indexing
                                      methodology as prescribed by the Internal Revenue Code.

                                      Source: GAO analysis of SOI data.




                                      As agreed with your office, unless you publicly release its contents earlier,
                                      we plan no further distribution of this report until 30 days from the date of
                                      this letter. At that time, we will send copies to the Ranking Minority
                                      Member of your committee and the Chairmen and Ranking Minority
                                      Members of other interested congressional committees, the Secretary of
                                      the Treasury, the Commissioner of Internal Revenue, and other interested
                                      parties.




                                      15
                                        Confidence interval is ± 27 percent of the reported value.



                                      Page 20                                                        GAO/GGD-97-69 Earned Income Credit
B-272879




Major contributors to this report are listed in appendix IV. If you or your
staff have any questions, please call me on (202) 512-5594.

Sincerely yours,




James R. White
Associate Director, Tax Policy
  and Administration Issues




Page 21                                      GAO/GGD-97-69 Earned Income Credit
Contents



Letter                                                                                            1


Appendix I                                                                                       26
                        Tax Year 1990                                                            26
EIC Eligibility Rules   Tax Year 1991                                                            27
and Amounts for Tax     Tax Year 1992                                                            28
                        Tax Year 1993                                                            29
Years 1990 Through      Tax Year 1994                                                            30
1996                    Tax Year 1995                                                            30
                        Tax Year 1996                                                            31

Appendix II                                                                                      33
                        Methodology Used to Develop the Longitudinal Database                    33
Scope, Methodology,     Scope and Methodology for the Data Analyses                              34
and Precision of        Precision of the Statistical Estimates                                   36
Statistical Estimates
Appendix III                                                                                     37
                        EIC Claims and Program Costs                                             37
Detailed Data Tables    EIC Participation Patterns                                               38
                        EIC Claimants’ Income in the Years Following a Claim                     42
                        Taxpayers Who Stopped Claiming the EIC                                   57

Appendix IV                                                                                      64

Major Contributors to
This Report
Related GAO Products                                                                             68


Tables                  Table 1: EIC Income Ranges for Tax Years 1990 Through 1994               13
                        Table 2: Filing Status Changes From a Year in Which the EIC Was          19
                          Claimed to the First Year Off the EIC
                        Table 3: Distribution Among EIC Income Ranges for 1994                   20
                          Claimants of the EIC for Families With Children Using 1994 and
                          1990 Income Limits
                        Table I.1: EIC Calculations for Tax Year 1990                            27
                        Table I.2: EIC Calculations for the Tax Year 1991 Basic Credit           28
                        Table I.3: EIC Calculations for the Tax Year 1992 Basic Credit           29




                        Page 22                                   GAO/GGD-97-69 Earned Income Credit
Contents




Table I.4: EIC Calculations for the Tax Year 1993 Basic Credit           29
Table I.5: EIC Calculations for Tax Year 1994                            30
Table I.6: EIC Calculations for Tax Year 1995                            31
Table I.7: EIC Calculations for Tax Year 1996                            32
Table III.1: Total EIC Claims and Amounts, Tax Years 1990                37
  Through 1994
Table III.2: Number of Taxpayers Claiming the EIC in a 5-Year            38
  Period, by Number of Years Claiming the EIC and EIC Status in
  Tax Year 1994
Table III.3: Patterns of Claiming the EIC, Tax Years 1990 Through        39
  1994
Table III.4: Number and Percentage of EIC Claimants Who Did              41
  Not Claim the Credit Again, 1 to 4 Consecutive Years After a
  Claim, by Tax Year
Table III.5: Number and Percentage of EIC Claimants Who                  42
  Claimed the Credit for 2 to 5 Consecutive Years, by Tax Year
Table III.6: Reported Income of EIC Claimants, Averages for 1 to         43
  4 Years After a Claim, Number and Percentage of Claimants by
  Income Range
Table III.7: Reported Income of Tax Year 1990 EIC Claimants for          44
  Tax Years 1991 Through 1994, Number and Percentage of
  Claimants by Income Range
Table III.8: Reported Income of Tax Year 1991 EIC Claimants for          45
  Tax Years 1992 Through 1994, Number and Percentage of
  Claimants by Income Range
Table III.9: Reported Income of Tax Year 1992 EIC Claimants for          46
  Tax Years 1993 and 1994, Number and Percentage of Claimants
  by Income Range
Table III.10: Reported Income of Tax Year 1993 EIC Claimants for         47
  Tax Year 1994, Number and Percentage of Claimants by Income
  Range
Table III.11: Reported Income of EIC Phase-in Range Claimants,           48
  Averages for 1 to 4 Years After a Claim, Number and Percentage
  of Claimants by Income Range
Table III.12: Reported Income of Tax Year 1990 EIC Phase-in              49
  Range Claimants, for Tax Years 1991 Through 1994, Number and
  Percentage of Claimants by Income Range
Table III.13: Reported Income of Tax Year 1991 EIC Phase-in              50
  Range Claimants for Tax Years 1992 Through 1994, Number and
  Percentage of Claimants by Income Range




Page 23                                   GAO/GGD-97-69 Earned Income Credit
          Contents




          Table III.14: Reported Income of Tax Year 1992 EIC Phase-in              51
            Range Claimants for Tax Years 1993 and 1994, Number and
            Percentage of Claimants by Income Range
          Table III.15: Reported Income of Tax Year 1993 EIC Phase-in              52
            Range Claimants for Tax Year 1994, Number and Percentage of
            Claimants by Income Range
          Table III.16: Reported Income for EIC Phase-Out Range                    53
            Claimants, Averages for 1 to 4 Years After a Claim, Number and
            Percentage of Claimants by Income Range
          Table III.17: Reported Income of Tax Year 1990 EIC Phase-Out             54
            Range Claimants for Tax Years 1991 Through 1994, Number and
            Percentage of Claimants by Income Range
          Table III.18: Reported Income of Tax Year 1991 EIC Phase-Out             55
            Range Claimants for Tax Years 1992 Through 1994, Number and
            Percentage of Claimants by Income Range
          Table III.19: Reported Income of Tax Year 1992 EIC Phase-Out             56
            Range Claimants for Tax Years 1993 and 1994, Number and
            Percentage of Claimants by Income Range
          Table III.20: Reported Income of Tax Year 1993 EIC Phase-Out             57
            Range Claimants for Tax Year 1994, Number and Percentage of
            Claimants by Income Range
          Table III.21: EIC Claimants’ Reported Income in the First and            58
            Second Consecutive Years off the Credit, Averages for Tax Years
            1991 Through 1994, Number and Percentage of Departures by
            Income Range
          Table III.22: EIC Claimants Reporting the Same or Different              60
            Filing Status in the First and Second Consecutive Years off the
            Credit, by Income Range, Averages for Tax Year 1991 Through
            1994 Departures From the Credit
          Table III.23: Type of Filing Status Change From the Year of an           62
            EIC Claim to the First Year off the EIC, by Income Range,
            Averages for Tax Years 1990 Through 1994


Figures   Figure 1: EIC Costs and Number of Claims, Tax Years 1990                  8
            Through 1994
          Figure 2: Number of Years the EIC Was Claimed in a 5-Year                 9
            Period by Taxpayers Who Claimed the EIC for Families With
            Children at Least Once in Tax Years 1990 Through 1994
          Figure 3: Percentage of EIC Claimants Who Did and Did Not                11
            Claim the Credit Again, 1 to 4 Years After a Claim




          Page 24                                   GAO/GGD-97-69 Earned Income Credit
Contents




Figure 4: Percentage of EIC Claimants Who Took the Credit for 2          12
  to 5 Consecutive Years
Figure 5: Changes in EIC Claimants’ Reported Income Relative to          14
  EIC Income Ranges, From 1 to 4 Years After an EIC Claim
Figure 6: Changes in Income for EIC Claimants Who Claimed the            15
  Credit With Reported Income in the Phase-in Range
Figure 7: Changes in Income for EIC Claimants Who Claimed the            16
  Credit With Reported Income in the Phase-out Range
Figure 8: EIC Claimants’ Reported AGI in the First and Second            18
  Consecutive Years off the EIC




Abbreviations

AGI        adjusted gross income
CPI-U      consumer price index for all urban consumers
EIC        Earned Income Credit
IMF        Individual Masterfile
IRS        Internal Revenue Service
OBRA       Omnibus Budget Reconciliation Act
SOI        Statistics of Income
SSN        Social Security Number


Page 25                                   GAO/GGD-97-69 Earned Income Credit
Appendix I

EIC Eligibility Rules and Amounts for Tax
Years 1990 Through 1996

                    The basic structure for calculating EIC amounts has remained the same
                    since 1990. The credit gradually increases with increasing income
                    (phase-in range), plateaus at a maximum amount (plateau range), and then
                    decreases until it reaches zero (phase-out range). For taxpayers with
                    income in the phase-in range, a 15 percent phase-in rate, for example,
                    means that for each additional $100 of earned income, the taxpayer
                    receives $15 in EIC until income reaches the top of the phase-in range. All
                    taxpayers with income in the plateau range receive the same (maximum)
                    EIC amount. For taxpayers with income in the phase-out range, a
                    10 percent phase-out rate, for example, means that for every additional
                    $100 in income, the credit is reduced by $10. If taxpayers’ earned income
                    or adjusted gross income (AGI) exceeds the maximum qualifying income
                    level, they are not eligible for the credit. When taxpayers’ AGI is in the
                    credit’s phase-out range, they receive the lesser amount resulting from
                    using their earned income or AGI in calculating the credit.

                    The rules regarding which taxpayers are eligible for the EIC and the
                    formulas used to calculate the credit have undergone several changes
                    since 1990. This appendix explains the specifics of EIC eligibility, how the
                    credit was structured, and how benefit amounts were determined16 for tax
                    year 1990 along with subsequent changes effective in tax years 1991
                    through 1996.


                    To be eligible for the credit in tax year 1990, the following basic rules
Tax Year 1990       applied.

                •   The taxpayer must have (1) filed as married filing jointly and have been
                    entitled to a dependent exemption under Internal Revenue Code section
                    151 for a child, (2) filed as a surviving spouse as determined under Internal
                    Revenue Code section 2(a), or (3) filed as a head of household as
                    determined under Internal Revenue Code section 2(b) with certain
                    modifications.
                •   The taxpayer’s child must have had the same principal place of abode as
                    the taxpayer for more than half of the tax year and that abode must have
                    been in the United States.




                    16
                      The income breakpoints used in this report to define the EIC phase-in, plateau, and phase-out ranges
                    were taken from IRS EIC tables that taxpayers used to determine their credit amount. These
                    breakpoints may differ slightly from those calculated mathematically using the phase-in and phase-out
                    rates and maximum credit amount established by law.



                    Page 26                                                     GAO/GGD-97-69 Earned Income Credit
                                               Appendix I
                                               EIC Eligibility Rules and Amounts for Tax
                                               Years 1990 Through 1996




                                               In addition, the taxpayer’s maximum allowable income (either earned
                                               income or AGI) was $20,263. Table I.1 shows the details of how EIC amounts
                                               were to be calculated for tax year 1990.


Table I.1: EIC Calculations for Tax Year
1990                                                                                                  EIC calculation for families with
                                               EIC range                                                         one or more children
                                               Phase-in
                                                 Income range                                                              $1 - $6,799
                                                 Phase-in rate                                                                      14%
                                               Plateau
                                                 Income range                                                         $6,800 - $10,749
                                                 Maximum credit                                                                   $953
                                               Phase-out
                                                 Income range                                                        $10,750 - $20,263
                                                 Phase-out rate                                                                     10%
                                               Source: Internal Revenue Code and IRS EIC tables.




                                               In OBRA 1990, Congress made several changes to the EIC that took effect in
Tax Year 1991                                  tax year 1991. The changes

                                           •   defined an EIC “qualifying child” to mean a child who (1) is an EIC
                                               claimant’s son, daughter, adopted child, grandchild, stepchild, or foster
                                               child; (2) is under age 19, or under age 24 and a full-time student, or any
                                               age and permanently and totally disabled; and (3) lives in the claimant’s
                                               home in the United States for more than half of the year (or all of the year
                                               if a foster child);
                                           •   adjusted the credit structure to grant different credit amounts to taxpayers
                                               with one qualifying child and taxpayers with two or more qualifying
                                               children;
                                           •   added two supplemental credits—one going to taxpayers with a child
                                               under 1 year of age and another to taxpayers who paid health insurance
                                               premiums on policies covering their children;
                                           •   allowed taxpayers with a “single” filing status to claim the credit; and
                                           •   specified a general increase in credit rates that was to be phased in over 4
                                               years (the planned increase for 1994 was superseded by 1993 legislation).

                                               The supplemental credit structure was similar to that of the basic credit.
                                               The supplemental credit for children under 1 year of age added



                                               Page 27                                             GAO/GGD-97-69 Earned Income Credit
                                          Appendix I
                                          EIC Eligibility Rules and Amounts for Tax
                                          Years 1990 Through 1996




                                          5-percentage points to the phase-in rate and 3.57-percentage points to the
                                          phase-out rate. Similarly, the health insurance credit added up to
                                          6-percentage points to the phase-in rate and 4.285-percentage points to the
                                          phase-out rate. The health insurance credit, however, could not exceed the
                                          actual amount of health insurance premiums paid. Families with one child
                                          taking both the supplemental credit for a young child and the maximum
                                          supplemental credit for health insurance would have had an effective
                                          phase-in rate of 27.7 percent and a phase-out rate of 19.785 percent.

                                          Table 1.2 shows how the basic credit was to be calculated for tax year
                                          1991.

Table I.2: EIC Calculations for the Tax
Year 1991 Basic Credit                                                   EIC calculation for families         EIC calculation for families
                                          EIC range                                   with one child           with two or more children
                                          Phase-in
                                            Income range                                    $1 - $7,099                          $1 - $7,099
                                            Phase-in rate                                           16.7%                                17.3%
                                          Plateau
                                            Income range                              $7,100 - $11,249                     $7,100 - $11,249
                                            Maximum credit                                       $1,192                               $1,235
                                          Phase-out
                                            Income range                             $11,250 - $21,249                    $11,250 - $21,249
                                            Phase-out rate                                         11.93%                               12.36%
                                          Note: In addition to the basic EIC credit, taxpayers may also have been eligible for a
                                          supplemental health insurance credit of up to $428 and/or a supplemental credit for a child born
                                          in 1991 of up to $357.

                                          Source: Internal Revenue Code and IRS EIC tables.




                                          No major changes to the EIC were made effective for tax year 1992.
Tax Year 1992                             However, the phase-in and phase-out rate changes specified under OBRA
                                          1990 were implemented. Table I.3 shows how the basic credit was to be
                                          calculated for tax year 1992.




                                          Page 28                                                   GAO/GGD-97-69 Earned Income Credit
                                          Appendix I
                                          EIC Eligibility Rules and Amounts for Tax
                                          Years 1990 Through 1996




Table I.3: EIC Calculations for the Tax
Year 1992 Basic Credit                                                   EIC calculation for families         EIC calculation for families
                                          EIC range                                   with one child           with two or more children
                                          Phase-in
                                            Income range                                    $1 - $7,499                          $1 - $7,499
                                            Phase-in rate                                           17.6%                                18.4%
                                          Plateau
                                            Income range                              $7,500 - $11,849                     $7,500 - $11,849
                                            Maximum credit                                        $1324                               $1,384
                                          Phase-out
                                            Income range                             $11,850 - $22,369                    $11,850 - $22,369
                                            Phase-out rate                                         12.57%                               13.14%
                                          Note: In addition to the basic EIC credit, taxpayers may also have been eligible for a
                                          supplemental health insurance credit of up to $451 and/or a supplemental credit for a child born
                                          in 1992 of up to $376.

                                          Source: Internal Revenue Code and IRS EIC tables.




                                          No major changes to the EIC were made effective in tax year 1993. Table I.4
Tax Year 1993                             shows how the EIC basic credit was to be calculated and reflects the rate
                                          changes mandated in OBRA 1990.

Table I.4: EIC Calculations for the Tax
Year 1993 Basic Credit                                                   EIC calculation for families         EIC calculation for families
                                          EIC range                                   with one child           with two or more children
                                          Phase-in
                                            Income range                                    $1 - $7,749                          $1 - $7,749
                                            Phase-in rate                                           18.5%                                19.5%
                                          Plateau
                                            Income range                              $7,750 - $12,199                     $7,750 - $12,199
                                            Maximum credit                                       $1,434                               $1,511
                                          Phase-out
                                            Income range                             $12,200 - $23,049                    $12,200 - $23,049
                                            Phase-out rate                                         13.21%                               13.93%
                                          Note: In addition to the basic EIC credit, taxpayers may also have been eligible for a
                                          supplemental health insurance credit of up to $465 and/or a supplemental credit for a child born
                                          in 1993 of up to $388.

                                          Source: Internal Revenue Code and IRS EIC tables.




                                          Page 29                                                   GAO/GGD-97-69 Earned Income Credit
                                               Appendix I
                                               EIC Eligibility Rules and Amounts for Tax
                                               Years 1990 Through 1996




                                               In OBRA 1993 and other legislation, Congress made several notable changes
Tax Year 1994                                  to the EIC that went into effect in tax year 1994. These changes

                                           •   simplified EIC filing by eliminating the supplemental young child and health
                                               insurance credits;
                                           •   expanded EIC coverage to include certain taxpayers without qualifying
                                               children (i.e., “childless adults”);
                                           •   increased, over a 3-year period beginning in tax year 1994, the maximum
                                               credit amounts for families with children; and
                                           •   denied the EIC for wages earned by prison inmates.

                                               To receive the new EIC for childless adults, taxpayers (1) had to be at least
                                               25 but less than 65 years old, (2) had to have income of less than $9,000,
                                               and (3) could not be claimed as a dependent on another return. As shown
                                               in table I.5, the EIC for childless adults was structured, like the credit for
                                               families with children, with a phase-in, plateau, and phase-out range.

Table I.5: EIC Calculations for Tax Year
1994                                                                     EIC calculation for EIC calculation for
                                                                          families with one families with two or       EIC calculation for
                                               EIC range                               child      more children          childless adults
                                               Phase-in
                                                 Income range                     $1 - $7,749            $1 - $8,399           $1 - $3,999
                                                 Phase-in rate                            26.3%                30.0%                 7.65%
                                               Plateau
                                                 Income range               $7,750 - $10,999        $8,400 - $10,999      $4,000 - $4,999
                                                 Maximum credit                        $2,038                $2,528                  $306
                                               Phase-out
                                                 Income range              $11,000 - $23,754       $11,000 - $25,295      $5,000 - $8,999
                                                 Phase-out rate                         15.98%                17.86%                 7.65%
                                               Source: Internal Revenue Code and IRS EIC tables.




                                               Effective for tax year 1995, Congress
Tax Year 1995
                                           •   extended the EIC to taxpayers living outside the United States because of a
                                               military assignment if they meet all other criteria, and
                                           •   denied the credit to anyone who spent part of the tax year as a
                                               nonresident alien.




                                               Page 30                                                GAO/GGD-97-69 Earned Income Credit
                                               Appendix I
                                               EIC Eligibility Rules and Amounts for Tax
                                               Years 1990 Through 1996




                                               As reflected in table I.6, the second year of rate changes specified in OBRA
                                               1993 were also implemented.


Table I.6: EIC Calculations for Tax Year
1995                                                                        EIC calculation for EIC calculation for
                                                                             families with one families with two or               EIC calculation for
                                               EIC range                                  child      more children                  childless adults
                                               Phase-in
                                                    Income range                     $1 - $6,149               $1 - $8,599                $1 - $4,099
                                                    Phase-in rate                            34.0%                     36.0%                        7.65%
                                               Plateau
                                                    Income range               $6,150 - $11,299          $8,600 - $11,299            $4,100 - $5,149
                                                    Maximum credit                         $2,094                   $3,110                      $314
                                               Phase-out
                                                    Income range              $11,300 - $24,395        $11,300 - $26,672             $5,150 - $9,229
                                                    Phase-out rate                          15.98%                    20.22%                        7.65%
                                               Source: Internal Revenue Code and IRS EIC tables.




                                               Congress made three changes to the EIC in the Personal Responsibility and
Tax Year 1996                                  Work Opportunity Reconciliation Act of 1996 (P.L. 104-193). These
                                               changes

                                           •   denied the EIC to taxpayers with investment income greater than $2,200,
                                               regardless of their earned income or AGI;
                                           •   created a “modified AGI” to be used in calculating the credit that excludes
                                               certain losses from investments and businesses; and
                                           •   denied the credit to taxpayers without valid Social Security Numbers
                                               (SSN).17

                                               For most taxpayers, the investment income and modified AGI provisions
                                               were effective for tax year 1996; for taxpayers using the EIC advance
                                               payment option18 as of June 26, 1996, these two provisions are effective for
                                               tax year 1997. The SSN provision was effective for all taxpayers for tax year
                                               1996.



                                               17
                                                 Taxpayers were already required to provide valid SSNs for qualifying children.
                                               18
                                                Taxpayers who expect to qualify for the EIC can, by filing a form with their employers, receive a
                                               portion of their credit in advance as regular additions to their paychecks.



                                               Page 31                                                     GAO/GGD-97-69 Earned Income Credit
                                           Appendix I
                                           EIC Eligibility Rules and Amounts for Tax
                                           Years 1990 Through 1996




                                           The investment income exclusion is basically an indirect wealth test
                                           intended to eliminate certain taxpayers from the EIC program. Investment
                                           income includes taxable and nontaxable interest, taxable dividends, net
                                           rent and royalty income derived from sources outside the taxpayer’s
                                           ordinary course of trade or business, capital gain net income, and passive
                                           activity net income.19 The threshold is to be indexed for inflation.

                                           “Modified AGI” for the purposes of the EIC means AGI determined without
                                           regard to (1) net capital losses, (2) net losses from trusts and estates,
                                           (3) net losses from rents and royalties derived outside the taxpayer’s
                                           normal course of trade or business, and (4) 50 percent of net losses from
                                           trades or businesses. The losses subject to the 50 percent exclusion are to
                                           be computed separately with respect to sole proprietorships other than
                                           farming, farming sole proprietorships, and other trades or businesses.

                                           Table I.7 shows how the EIC was to be calculated for tax year 1996.

Table I.7: EIC Calculations for Tax Year
1996                                                                    EIC calculation for EIC calculation for
                                                                         families with one families with two or             EIC calculation for
                                           EIC range                                  child      more children                childless adults
                                           Phase-in
                                                Income range                     $1 - $6,299               $1 - $8,849               $1 - $4,199
                                                Phase-in rate                            34.0%                     40.0%                     7.65%
                                           Plateau
                                                Income range               $6,300 - $11,649          $8,850 - $11,649           $4,200 - $5,299
                                                Maximum credit                         $2,152                    $3,556                      $323
                                           Phase-out
                                                Income range             $11,650 - $25,077         $11,650 - $28,494            $5,300 - $9,499
                                                Phase-out rate                          15.98%                    21.06%                     7.65%
                                           Source: Internal Revenue Code and IRS EIC tables.




                                           19
                                             The disqualified investment income test was added to the Internal Revenue Code by P.L. 104-7,
                                           effective beginning with tax year 1996. The Personal Responsibility and Work Opportunity
                                           Reconciliation Act of 1996, however, amended the disqualified investment income test by (1) adding
                                           capital gain net income and net passive income (if greater than zero) to the definition of disqualified
                                           investment income, (2) lowering the threshold from $2,350 to $2,200, and (3) indexing the threshold to
                                           inflation after 1996.



                                           Page 32                                                     GAO/GGD-97-69 Earned Income Credit
Appendix II

Scope, Methodology, and Precision of
Statistical Estimates

                        This appendix describes the methodology we used to construct the
                        longitudinal database that was the basis of our work and the specific
                        methodology for our data analyses. This appendix also includes data on
                        the precision of the statistical estimates included in the body of this
                        report.


                        We obtained and analyzed a longitudinal, random sample of tax returns
Methodology Used to     filed for tax years 1990 through 1994, the most recent 5-year period of data
Develop the             available at the time we began our work. This longitudinal subsample20 is
Longitudinal Database   part of a larger database generated by IRS’ Statistics of Income (SOI)
                        division.

                        From the longitudinal sample, we identified 6,141 taxpayers who claimed
                        the EIC in any 1 of the 5 years. The SOI databases for each tax year include a
                        small percentage of returns from earlier tax years, and we eliminated
                        returns for tax year 1989 or earlier. We also found 44 duplicate SSNs in the
                        sample. All of the associated tax returns were retained as separate returns
                        when the names and tax information showed these were separate
                        taxpayers.

                        For most taxpayers, all of the information for our analysis could be drawn
                        from the SOI database. However, information was not available on some
                        taxpayers, in some years after an EIC claim, usually because the taxpayer
                        did not file a return or because the taxpayer was included as a secondary
                        filer on another taxpayer’s return. To obtain information for those years,
                        we asked IRS to match SSNs for these taxpayers to primary and secondary
                        SSNs on the individual masterfile (IMF) and print transcripts for tax years
                        1991 through 1994. From these transcripts printed in December 1996, we
                        were able to complete information on AGI, EIC amount (if any), and filing
                        status (in some cases) for taxpayers who had filed as secondary filers on a
                        joint return or had filed too late to be included in the SOI database.21 We
                        classified taxpayers who did not have return information for a given tax
                        year either in the SOI database or on the IMF as not having filed a return that
                        year. We were not able to determine why a taxpayer did not file a return.




                        20
                          The SOI “Continuous Work History Panel.”
                        21
                         IMF data were used only in tracking forward taxpayers already having a weighted record in the SOI
                        database.



                        Page 33                                                   GAO/GGD-97-69 Earned Income Credit
                             Appendix II
                             Scope, Methodology, and Precision of
                             Statistical Estimates




                             Our analyses included EIC claims made in tax years 1990 through 1994. In
Scope and                    addition, our analyses of consecutive years on and off the credit and
Methodology for the          changes in reported income were limited to tracking EIC claimants in the
Data Analyses                years following an EIC claim. For this type of analysis, we made separate
                             estimates for tax year 1990, 1991, 1992, and 1993 claimants and averaged
                             the results across all years. For example, the averages for EIC participation
                             or income in the first year after a claim were made on the basis of
                             approximately 54 million claims made in tax years 1990, 1991, 1992, and
                             1993; estimates for the second year after a claim were made on the basis of
                             39 million claims made in tax years 1990, 1991, and 1992. Estimates for the
                             third year after a claim were made on the basis of about 26 million claims
                             made in 1990 and 1991 and estimates for the fourth year after a claim were
                             made on the basis of approximately 12 million tax year 1990 claims. The
                             results for both the individual years and combined averages are given in
                             appendix III.


EIC Participation Patterns   To identify patterns of claiming the EIC, we determined the years on and
                             off the EIC for each taxpayer in our database. We used this participation
                             data to estimate the percentage of all EIC taxpayers who, over the 5-year
                             period, claimed the credit for 1, 2, 3, 4, and 5 years. We also estimated the
                             percentage of EIC claimants for each tax year who, in the 1 to 4 years
                             following a claim (as appropriate), (1) claimed the credit at least once
                             more, (2) did not claim the credit again, or (3) continued to consecutively
                             claim the credit.

                             Some taxpayers who claimed the EIC for families with children between
                             1990 and 1993 claimed the credit for childless adults in tax year 1994. We
                             included all tax year 1994 EIC claims in our analysis, regardless of claim
                             type.


Changes in Income in the     To track changes in EIC claimants’ income in the years after an EIC claim,
Years Following a Claim      we created a series of income categories relative to the EIC income ranges
                             for each tax year. These categories were (1) negative AGI, (2) the EIC
                             phase-in range, (3) the EIC plateau range, (4) the EIC phase-out range,
                             (5) the EIC phase-out amount to 10 percent over that amount, (6) between
                             10 and 25 percent over the phase-out amount, (7) between 25 and
                             50 percent over the phase-out amount, and (8) 50 percent or more over the
                             phase-out amount.22 The income parameters for each category changed

                             22
                              To simplify presentation in the body of this report, we collapsed all categories for income above the
                             phase-out point. Data using the detailed categories are included in appendix III.



                             Page 34                                                     GAO/GGD-97-69 Earned Income Credit
                             Appendix II
                             Scope, Methodology, and Precision of
                             Statistical Estimates




                             slightly from year to year to reflect the EIC cutoff points specific to each
                             tax year (see app. I for EIC income ranges by tax year). For each tax year,
                             we used taxpayers’ reported AGI (or earned income, if applicable, in the
                             years the taxpayer claimed the EIC) to assign their income to the
                             appropriate category. We then estimated the proportion of EIC claimants
                             whose income stayed in the same or moved among categories in the years
                             after an EIC claim.

                             Taxpayers who claimed the childless adult credit in 1994 and had
                             previously claimed the credit for families with children were included in
                             this analysis. To provide a common income measure across all years,
                             however, we disregarded childless adult credit ranges in 1994 and applied
                             all reported 1994 income to the ranges for families with one qualifying
                             child. To classify income for non-EIC claimants, we also used the income
                             parameters for families with one child.

                             Because the EIC is indexed for inflation, our income categories also, in
                             effect, account for inflation adjustments. A legislative change implemented
                             in tax year 1994, however, also adjusted the income ranges more than they
                             would have changed due to straight inflation adjustments. It is possible,
                             therefore, that the same reported AGI could fall into two different ranges
                             from one year to the next. This is a limitation of our analysis in terms of
                             identifying true change in income; however, our primary interest was in
                             tracking changes in income in the context of claiming the EIC.


Taxpayers Who Stopped        To describe the status of EIC claimants who at any point stopped claiming
Claiming the EIC             the credit between 1990 and 1994, we determined, for the first and second
                             consecutive years off the credit, the proportion of former claimants who
                             (1) reported AGI either above or below the EIC limit, (2) claimed no
                             dependent exemptions, and (3) reported a change in filing status from the
                             year of claiming the EIC to the year off the EIC. We also determined the
                             proportion who did not file a return. We did not attempt to obtain data on
                             why taxpayers did not file a return, e.g., left the workforce, death, etc.


1990 Rules Applied to 1994   To estimate the number of 1994 EIC claimants of the credit for families
Claimants                    with children who would and would not have been eligible for the credit if
                             the 1990 EIC maximum income limit still would have been in effect, we
                             indexed the 1990 EIC phase-in, plateau, and phase-out cutoffs to 1994




                             Page 35                                     GAO/GGD-97-69 Earned Income Credit
                        Appendix II
                        Scope, Methodology, and Precision of
                        Statistical Estimates




                        dollars23 and applied the indexed cutoff points to the 1994 EIC claimants’
                        reported income. We also estimated the amount of 1994 EIC claims made
                        by those claimants who reported income above the indexed 1990 EIC limit.


                        All data presented in this report are estimates based on the SOI longitudinal
Precision of the        subsample. Accordingly, we calculated confidence intervals at the
Statistical Estimates   95-percent confidence level to indicate the precision of the estimates
                        included in the body of the report. For example, we show in figure 4 that,
                        on average, 56.2 percent of EIC claimants took the credit for 3 or more
                        consecutive years. This estimate is surrounded by a 95-percent confidence
                        interval of ± 1.4 percent. This indicates that we are 95 percent confident
                        that the actual percentage is included in the range of 54.8 to 57.6 percent.
                        Unless otherwise noted, the 95-percent confidence intervals for all
                        percentages in the body of the report are less than ± 5 percentage points
                        and for other statistics are less than ± 10 percent of the reported estimate.

                        Sampling errors used to calculate the confidence intervals are based on
                        the assumption that the longitudinal database is a simple random sample
                        of 6,141 taxpayers. Sampling errors for tax returns from more than 1 year
                        take into account the fact that individual taxpayers can file as many as five
                        returns over the 5-year study period. These sampling errors come from a
                        cluster sampling formula that recognizes that tax returns are drawn in
                        clusters associated with each selected SSN. Sampling errors for our data
                        are included in appendix III.

                        Our estimates are based upon the SOI longitudinal subsample rather than
                        the full SOI database; consequently, estimates reported here differ slightly
                        from estimates generated using the full SOI sample. For example, in our
                        June 1996 EIC report,24 we reported 19.1 million 1994 claimants, using the
                        advance version of the full SOI database of approximately 7,800 EIC returns.
                        The estimate in this report is 18.5 million, using the longitudinal panel with
                        about 3,700 EIC returns. The estimates of the amount of EIC claimed by
                        taxpayers in this report may also differ from the EIC that taxpayers actually
                        received. IRS examinations and other actions may make the actual EIC
                        amount granted to a taxpayer different from the amount claimed on the
                        tax return.



                        23
                         We used the CPI-U as reported by the Bureau of Labor Statistics and EIC indexing methodology as
                        prescribed by the Internal Revenue Code.
                        24
                         Earned Income Credit: Profile of Tax Year 1994 Credit Recipients (GAO/GGD-96-122BR, June 13,
                        1996).



                        Page 36                                                   GAO/GGD-97-69 Earned Income Credit
Appendix III

Detailed Data Tables


                                    This appendix presents the detailed data resulting from our analysis of the
                                    longitudinal database. All data are estimates based on the sample.
                                    Standard errors for each estimate are in parentheses in each table cell. The
                                    standard error is a measure of the variability that is introduced by
                                    sampling from the population of EIC claims. A 95-percent confidence
                                    interval is calculated by multiplying the standard error by 1.96. For
                                    example, in the first row of Table 1, the standard error of $136 million for
                                    tax year 1990 indicates that the estimate of $7,233,000,000 is surrounded
                                    by a 95-percent confidence interval of about ± $267,000,000
                                    ($136,000,000*1.96) and thus stretches from $6,966,000,000 to
                                    $7,500,000,000.


                                    Table III.1 shows the number of EIC claims and EIC amounts for tax years
EIC Claims and                      1990 through 1994. Table III.2 provides data on the frequency with which
Program Costs                       taxpayers claimed the EIC over the same 5-year period by EIC status in tax
                                    year 1994.

Table III.1: Total EIC Claims and
Amounts, Tax Years 1990 Through     Standard errors in parentheses
1994                                                                                      EIC amount                    Number of claims
                                    Tax Year                                      (dollars in millions)                   (in thousands)
                                    1990                                                           $7,233                             12,115
                                                                                                     (136)                              (192)
                                    1991                                                           10,926                             13,395
                                                                                                     (193)                              (194)
                                    1992                                                           12,698                             13,590
                                                                                                     (221)                              (195)
                                    1993                                                           14,935                             14,545
                                                                                                     (242)                              (196)
                                    1994a                                                          20,687                             18,550
                                                                                                     (322)                              (192)
                                    Total                                                        $66,478                              72,195
                                                                                                    (756)                               (564)
                                    Note 1: Dollar values are not indexed.

                                    Note 2: Dollars do not add to total due to rounding.
                                    a
                                     The 1994 total includes 14.5 million claims for the EIC for families with children totaling $20 billion
                                    and 4 million claims for the childless adult credit totaling $0.7 billion.

                                    Source: GAO analysis of SOI data.




                                    Page 37                                                       GAO/GGD-97-69 Earned Income Credit
                                            Appendix III
                                            Detailed Data Tables




Table III.2: Number of Taxpayers Claiming the EIC in a 5-Year Period, by Number of Years Claiming the EIC and EIC Status
in Tax Year 1994
Number of claimants in thousands

Standard errors in parentheses

Number of years                                          EIC status in tax year 1994
claiming the EIC                              Claimed childless
in the 5-year                                   adult credit and Claimed childless
period between          Did not claim the   claimed EIC at least   adult credit and             Claimed EIC
tax years 1990          EIC for childless     once from 1990 to did not claim EIC                   but type       Did not file a
and 1994                           adults                  1993 from 1990 to 1993                 unknowna        return in 1994          Total
1 of 5 years                       6,535                                            3,410                                    2,100       12,045
                                    (160)                                            (123)                                     (99)        (191)
2 of 5 years                       4,590                       290                                          75               1,075        6,030
                                    (140)                      (38)                      0                 (19)                (72)        (156)
3 of 5 years                       3,690                       140                                          35                 700        4,565
                                    (127)                      (26)                      0                 (13)                (58)        (139)
4 of 5 years                       3,220                        75                                          60                 305        3,660
                                    (120)                      (19)                      0                 (17)                (39)        (127)
5 of 5 years                       4,260                        90                                          55                            4,405
                                    (135)                      (21)                      0                 (17)                            (137)
Total                             22,295                       595                  3,410                  225               4,180       30,705
                                    (175)                      (54)                  (123)                 (33)               (134)
                                            a
                                             The SOI databases did not include information on some taxpayers, in some years after an EIC
                                            claim. During our analysis of IMF transcripts for these taxpayers and years, we found that some
                                            had made EIC claims, but the transcripts did not include EIC earned income amounts or data on
                                            EIC qualifying children. Consequently, for tax year 1994 claimants reporting AGI under $9,000
                                            (the income limit for childless adults), we were unable to precisely determine which taxpayers had
                                            claimed the EIC for families with children and which had claimed the EIC for childless adults.

                                            Source: GAO analysis of SOI and IMF data.




                                            Table III.3 provides data on each possible EIC participation pattern for the
EIC Participation                           5-year period including tax years 1990 through 1994. Tables III.4 and III.5
Patterns                                    provide specific data, by tax year, on claimants continuing to claim the EIC
                                            in consecutive years and claimants not taking the credit again.




                                            Page 38                                                   GAO/GGD-97-69 Earned Income Credit
                                        Appendix III
                                        Detailed Data Tables




Table III.3: Patterns of Claiming the
EIC, Tax Years 1990 Through 1994        Number of taxpayers and claims in thousands
                                        First year
                                        claiming the                                                                        Total
                                        EIC during                                                                     number of
                                        the 5-year                 Participation pattern                 Number of        claims
                                        period            1990     1991     1992    1993         1994    taxpayers        madea
                                        Tax year 1990
                                                               •                                              2,050        2,050
                                                               •                                    •          340           680
                                                               •                           •                   165           330
                                                               •                           •        •          265           795
                                                               •               •                               160           320
                                                               •               •                    •            60          180
                                                               •               •           •                   135           405
                                                               •               •           •        •          305         1,220
                                                               •       •                                      1,280        2,560
                                                               •       •                            •          265           795
                                                               •       •                   •                   135           405
                                                               •       •                   •        •          395         1,580
                                                               •       •       •                               975         2,925
                                                               •       •       •                    •          345         1,380
                                                               •       •       •           •                   835         3,340
                                                               •       •       •           •        •         4,405       22,025
                                        Subtotal                                                             12,115       40,990
                                        Tax year 1991
                                                                       •                                      1,315        1,315
                                                                       •                            •          185           370
                                                                       •                   •                   175           350
                                                                       •                   •        •          220           660
                                                                       •       •                               585         1,170
                                                                       •       •                    •          160           480
                                                                       •       •           •                   640         1,920
                                                                       •       •           •        •         1,780        7,120
                                        Subtotal                                                              5,060       13,385
                                        Tax year 1992
                                                                               •                              1,040        1,040
                                                                               •                    •          315           630
                                                                               •           •                   640         1,280
                                                                               •           •        •         1,710        5,130
                                        Subtotal                                                              3,705        8,080
                                                                                                                      (continued)


                                        Page 39                                                GAO/GGD-97-69 Earned Income Credit
Appendix III
Detailed Data Tables




Number of taxpayers and claims in thousands
First year
claiming the                                                                                   Total
EIC during                                                                                number of
the 5-year                       Participation pattern                        Number of      claims
period                 1990      1991       1992      1993       1994         taxpayers      madea
Tax year 1993
                                                           •                      1,200         1,200
                                                           •         •            2,185         4,370
Subtotal                                                                          3,385         5,570
                  b
Tax year 1994
                                                                     •            6,440         6,440
Total                                                                            30,705       74,465

Legend

    Bullet (•) indicates an EIC claim. A blank cell indicates no EIC claim.

Note: We did not include standard errors for the data in this table. The small values in some cells
are subject to large sampling errors because each sample taxpayer is inflated to represent about
5,000 taxpayers in the total population. The estimate of 60,000 taxpayers in the sixth line, for
example, comes from only 12 sample observations. The data from this table yield more accurate
estimates when aggregated, as they were for other analyses in this report.
a
 The SOI databases did not include information on some taxpayers, in some years after an EIC
claim. During our analysis of IMF transcripts for these taxpayers and tax years, we found that
some had made EIC claims. These IMF-based claims are not included in the total number of
claims, based only on SOI data, for each tax year as shown in table III.1. The IMF-based claims
were used only in analyses of claimants’ EIC status in the years following their first SOI-based
claim and, thus, are included in this table.
b
 Tax year 1994 total includes 3,410,000 taxpayers who claimed the credit for childless adults and
who had not claimed the EIC for families with children in tax years 1990 through 1994.

Source: GAO analysis of SOI and IMF data.




Page 40                                                        GAO/GGD-97-69 Earned Income Credit
                                              Appendix III
                                              Detailed Data Tables




Table III.4: Number and Percentage of EIC Claimants Who Did Not Claim the Credit Again, 1 to 4 Consecutive Years After a
Claim, by Tax Year
Number of claimants in thousands

Standard errors in parentheses
                                                      Number of consecutive years not claiming the EIC again
                                   At least 1 year              At least 2 years               At least 3 years                   4 years
                                 Number of                    Number of                Number of                           Number of
                       Total         former                       former                  former                               former
Tax year          claimants       claimants       Percent      claimants       Percent claimants             Percent        claimants         Percent
1990                  12,115         3,480           28.7%           2,820          23.3%         2,390          19.7%           2,050           16.9%
                        (192)         (124)          (0.9)            (113)         (0.9)          (105)         (0.8)             (98)          (0.8)
1991                  13,395         3,900           29.1%           2,990          22.3%         2,560          19.1%
                        (194)         (130)          (0.9)            (116)         (0.8)          (108)         (0.8)
1992                  13,590         3,500           25.8%           2,645          19.5%
                        (195)         (125)          (0.8)            (110)         (0.8)
1993                  14,545         3,755           25.8%
                        (196)         (128)          (0.8)
Totala                53,645        14,635           27.3%           8,455          21.6%         4,950          19.4%           2,050           16.9%
                        (534)         (214)          (0.5)            (175)         (0.5)          (144)         (0.6)             (98)          (0.8)
                                              Note: Blank table cells indicate tax years after 1994 that were not included in our analysis.
                                              a
                                              Percentages are averages based on the following:

                                              1 year off—53,645,000 (534,000) claims made in tax years 1990, 1991, 1992 and 1993;
                                              2 consecutive years off—39,100,000 (437,000) claims made in tax years 1990, 1991, and 1992;
                                              3 consecutive years off—25,510,000 (324,000) claims made in tax years 1990 and 1991; and
                                              4 consecutive years off—12,115,000 (192,000) claims made in tax year 1990.

                                              Source: GAO analysis of SOI and IMF data.




                                              Page 41                                                      GAO/GGD-97-69 Earned Income Credit
                                              Appendix III
                                              Detailed Data Tables




Table III.5: Number and Percentage of EIC Claimants Who Claimed the Credit for 2 to 5 Consecutive Years, by Tax Year
Number of claims in thousands

Standard errors in parentheses
                                                            Number of consecutive years claiming the EIC
                                 At least 2 years            At least 3 years               At least 4 years                      5 years
                     Total   Number of                      Number of                     Number of                      Number of
Tax year           claims       claims       Percent           claims       Percent          claims        Percent          claims            Percent
1990               12,115           8,635           71.3%        6,560          54.1%           5,240           43.3%           4,405            36.4%
                     (192)           (176)          (0.9)         (161)         (1.0)            (147)          (1.0)            (137)           (1.0)
1991               13,395           9,495           70.9%        7,490          55.9%           6,075           45.4%
                     (194)           (181)          (0.9)         (168)         (1.0)            (156)          (1.0)
1992               13,590          10,090           74.2%        7,930          58.4%
                     (195)           (184)          (0.8)         (172)         (0.9)
1993               14,545          10,790           74.2%
                     (196)           (187)          (0.8)
Totala             53,645          39,010           72.7%       21,980          56.2%          11,315           44.4%           4,405            36.4%
                     (534)           (562)          (0.5)         (429)         (0.7)            (281)          (0.9)            (137)           (1.0)
                                              Note: Blank table cells indicate tax years after 1994 that were not included in our analysis.
                                              a
                                               Percentages are averages based on the following:

                                              2 consecutive years—53,645,000 (534,000)claims made in tax years 1990, 1991, 1992, and 1993;
                                              3 consecutive years—39,100,000 (437,000) claims made in tax years 1990, 1991, and 1992;
                                              4 consecutive years—25,510,000 (324,000) claims made in tax years 1990 and 1991; and
                                              5 consecutive years—12,115,000 (192,000) claims made in tax year 1990.

                                              Source: GAO analysis of SOI and IMF data.




                                              Tables III.6 to III.20 provide detailed data on the number of EIC claimants
EIC Claimants’                                and income levels in the years following a claim. Table III.6 shows
Income in the Years                           averages for all claimants across all tax years. Table III.11 shows averages
Following a Claim                             for phase-in range claimants across all tax years, and table III.16 shows
                                              averages for phase-out range claimants across all tax years. Each of these
                                              tables is followed by four parallel tables showing the supporting data by
                                              tax year.




                                              Page 42                                                     GAO/GGD-97-69 Earned Income Credit
                                          Appendix III
                                          Detailed Data Tables




Table III.6: Reported Income of EIC Claimants, Averages for 1 to 4 Years After a Claim, Number and Percentage of
Claimants by Income Range
Number of claims in thousands

Standard errors in parentheses
                                                                 Number of years after an EIC claim
                                         1 year                    2 years                    3 years                   4 years
                                 Number of                   Number of                  Number of                  Number of
Income range                        claims        Percent       claims     Percent         claims      Percent        claims    Percent
Claimant did not file a return         4,720          8.8        5,040         12.9          4,010        15.7         2,140       17.7
                                        (147)        (0.3)        (172)        (0.4)          (157)       (0.6)         (100)      (0.8)
AGI negative or missing                 135           0.3          125           0.3           105          0.4           45        0.4
                                        (27)         (0.1)         (26)         (0.1)          (25)        (0.1)         (15)      (0.1)
In a lower EIC range                   6,205         11.6        4,790         12.3          2,965        11.6         1,265       10.4
                                        (177)        (0.3)        (171)        (0.4)          (131)       (0.5)          (78)      (0.6)
In the same EIC range                 29,365         54.7       17,485         44.7        10,160         39.8         4,385       36.2
                                        (462)        (0.6)        (349)        (0.7)         (240)        (0.8)         (137)      (1.0)
In a higher EIC range                  8,015         14.9        6,185         15.8          4,085        16.0         2,115       17.5
                                        (204)        (0.3)        (191)        (0.4)          (154)       (0.6)          (99)      (0.8)
EIC limit to 10% over limit            1,645          3.1        1,390           3.6           820          3.2          375        3.1
                                         (91)        (0.2)         (87)         (0.2)          (67)        (0.3)         (43)      (0.4)
10 to 25% over EIC limit               1,375          2.6        1,340           3.4           965          3.8          415        3.4
                                         (82)        (0.2)         (87)         (0.2)          (72)        (0.3)         (45)      (0.4)
25 to 50% over EIC limit               1,010          1.9        1,130           2.9           860          3.4          510        4.2
                                         (70)        (0.1)         (78)         (0.2)          (67)        (0.3)         (50)      (0.4)
50% or more over the EIC limit         1,175          2.2        1,615           4.1         1,540          6.0          865        7.1
                                         (76)        (0.1)         (99)         (0.3)          (99)        (0.4)         (65)      (0.5)
Total                                 53,645        100.0%      39,100        100.0%       25,510        100.0%       12,115      100.0%
                                        (534)                     (437)                      (324)                      (192)
                                          Note: Percentages may not add to total due to rounding.

                                          Source: GAO analysis of SOI and IMF data.




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Table III.7: Reported Income of Tax Year 1990 EIC Claimants for Tax Years 1991 Through 1994, Number and Percentage of
Claimants by Income Range
Number of claims in thousands

Standard errors in parentheses
                                                                              Tax years
                                        1991                       1992                        1993                     1994
                                 Number of                  Number of                  Number of                  Number of
Income range                        claims     Percent         claims     Percent         claims      Percent        claims    Percent
Claimant did not file a return        1,050          8.7        1,620         13.4          1,910        15.8         2,140       17.7
                                        (71)        (0.6)         (88)        (0.7)           (95)       (0.7)         (100)      (0.8)
AGI negative or missing                  45          0.4           45           0.4            50          0.4           45        0.4
                                        (15)        (0.1)         (15)         (0.1)          (16)        (0.1)         (15)      (0.1)
In a lower EIC range                  1,695        14.0         1,620         13.4          1,760        14.5         1,265       10.4
                                        (89)       (0.7)          (88)        (0.7)           (91)       (0.7)          (78)      (0.6)
In the same EIC range                 6,630        54.7         5,460         45.1          4,770        39.4         4,385       36.2
                                       (161)       (1.0)         (150)        (1.0)          (142)       (1.0)         (137)      (1.0)
In a higher EIC range                 1,515        12.5         1,610         13.3          1,635        13.5         2,115       17.5
                                        (85)       (0.7)          (87)        (0.7)           (88)       (0.7)          (99)      (0.8)
EIC limit to 10% over limit            400           3.3          515           4.3           435          3.6          375        3.1
                                       (44)         (0.4)         (50)         (0.4)          (46)        (0.4)         (43)      (0.4)
10 to 25% over EIC limit               280           2.3          400           3.3           470          3.9          415        3.4
                                       (37)         (0.3)         (44)         (0.4)          (48)        (0.4)         (45)      (0.4)
25 to 50% over EIC limit               225           1.9          320           2.6           335          2.8          510        4.2
                                       (33)         (0.3)         (40)         (0.3)          (41)        (0.3)         (50)      (0.4)
50% or more over the EIC limit         275           2.3          525           4.3           750          6.2          865        7.1
                                       (37)         (0.3)         (51)         (0.4)          (60)        (0.5)         (65)      (0.5)
Total                                12,115        100.0%      12,115        100.0%       12,115        100.0%       12,115      100.0%
                                       (192)                     (192)                      (192)                      (192)
                                         Note: Percentages may not add to total due to rounding.

                                         Source: GAO analysis of SOI and IMF data.




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Table III.8: Reported Income of Tax
Year 1991 EIC Claimants for Tax Years   Number of claims in thousands
1992 Through 1994, Number and
Percentage of Claimants by Income       Standard errors in parentheses
Range                                                                                      Tax years
                                                                  1992                        1993                    1994
                                        Income           Number of               Number of                   Number of
                                        range               claims       Percent    claims           Percent    claims       Percent
                                        Claimant did                           8.7                      12.4                    15.7
                                        not file a             1,170          (0.5)        1,655        (0.6)      2,100        (0.7)
                                        return                   (75)                        (88)                    (99)
                                        AGI negative              35           0.3            35          0.3          55        0.4
                                        or missing               (13)         (0.1)          (13)        (0.1)        (17)      (0.1)
                                        In a lower             1,585         11.8          1,845        13.8       1,205         9.0
                                        EIC range                (87)        (0.6)           (93)       (0.7)        (76)       (0.6)
                                        In the same            7,405         55.3          6,010        44.9       5,390        40.2
                                        EIC range               (168)        (1.0)          (155)       (1.0)       (149)       (0.9)
                                        In a higher            1,780         13.3          1,910        14.3       2,450        18.3
                                        EIC range                (92)        (0.7)           (95)       (0.7)       (106)       (0.7)
                                        EIC limit to                           3.8                        3.8                    2.9
                                        10% over                 505          (0.4)          515         (0.4)       385        (0.3)
                                        limit                    (50)                        (50)                    (44)
                                        10 to 25%                315           2.4           465          3.5        495         3.7
                                        over EIC limit           (39)         (0.3)          (48)        (0.4)       (49)       (0.4)
                                        25 to 50%                260           1.9           360          2.7        525         3.9
                                        over EIC limit           (36)         (0.3)          (42)        (0.3)       (51)       (0.4)
                                        50% or more                            2.5                        4.5                    5.9
                                        over the EIC             340          (0.3)          600         (0.4)       790        (0.5)
                                        limit                    (41)                        (54)                    (62)
                                        Total                13,395         100.0%       13,395        100.0%     13,395       100.0%
                                                               (194)                       (194)                    (194)
                                        Note: Percentages may not add to total due to rounding.

                                        Source: GAO analysis of SOI and IMF data.




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Table III.9: Reported Income of Tax
Year 1992 EIC Claimants for Tax Years   Number of claims in thousands
1993 and 1994, Number and
Percentage of Claimants by Income       Standard errors in parentheses
Range                                                                                                   Tax years
                                                                                            1993                       1994
                                                                                    Number of                   Number of
                                        Income range                                   claims       Percent        claims     Percent
                                        Claimant did not file a return                    1,150          8.5         1,765       13.0
                                                                                            (74)        (0.5)          (91)      (0.6)
                                        AGI negative or missing                              30          0.2            45        0.3
                                                                                            (12)        (0.1)          (15)      (0.1)
                                        In a lower EIC range                              1,710         12.6         1,325        9.7
                                                                                            (90)        (0.6)          (80)      (0.6)
                                        In the same EIC range                             7,535         55.4         6,015       44.3
                                                                                           (169)        (1.0)         (156)      (1.0)
                                        In a higher EIC range                             1,830         13.5         2,665       19.6
                                                                                            (93)        (0.7)         (110)      (0.8)
                                        EIC limit to 10% over limit                         400          2.9          360         2.6
                                                                                            (44)        (0.3)         (42)       (0.3)
                                        10 to 25% over EIC limit                            425          3.1          475         3.5
                                                                                            (46)        (0.3)         (48)       (0.4)
                                        25 to 50% over EIC limit                            250          1.8          450         3.3
                                                                                            (35)        (0.3)         (47)       (0.3)
                                        50% or more over the EIC limit                      260          1.9          490         3.6
                                                                                            (36)        (0.3)         (49)       (0.4)
                                        Total                                           13,590         100.0%       13,590      100.0%
                                                                                          (195)                       (195)
                                        Note: Percentages do not add to total due to rounding.

                                        Source: GAO analysis of SOI and IMF data.




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Table III.10: Reported Income of Tax
Year 1993 EIC Claimants for Tax Year   Number of claims in thousands
1994, Number and Percentage of
Claimants by Income Range              Standard errors in parentheses
                                                                                                            Tax year 1994
                                                                                                       Number of
                                       Income range                                                       claims            Percent
                                       Claimant did not file a return                                       1,350               9.3
                                                                                                              (80)             (0.5)
                                       AGI negative or missing                                                 25               0.2
                                                                                                              (11)             (0.1)
                                       In a lower EIC range                                                 1,215               8.4
                                                                                                              (76)             (0.5)
                                       In the same EIC range                                                7,795              53.6
                                                                                                             (171)             (0.9)
                                       In a higher EIC range                                                2,890              19.9
                                                                                                             (114)             (0.7)
                                       EIC limit to 10% over limit                                            340               2.3
                                                                                                              (41)             (0.3)
                                       10 to 25% over EIC limit                                               355               2.4
                                                                                                              (42)             (0.3)
                                       25 to 50% over EIC limit                                               275               1.9
                                                                                                              (37)             (0.3)
                                       50% or more over the EIC limit                                         300               2.1
                                                                                                              (39)             (0.3)
                                       Total                                                               14,545             100.0%
                                                                                                             (196)
                                       Note: Percentages do not add to total due to rounding.

                                       Source: GAO analysis of SOI and IMF data.




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Table III.11: Reported Income of EIC Phase-in Range Claimants, Averages for 1 to 4 Years After a Claim, Number and
Percentage of Claimants by Income Range
Number of claims in thousands

Standard errors in parentheses
                                                                 Number of years after an EIC claim
                                        1 year                     2 years                    3 years                   4 years
                                 Number of                   Number of                  Number of                  Number of
Income range                        claims       Percent        claims     Percent         claims      Percent        claims    Percent
Claimant did not file a return        2,880         19.0         2,510         23.4          1,835        26.7           885       27.9
                                       (118)        (0.7)         (120)        (1.0)          (103)       (1.3)          (66)      (1.8)
AGI negative or missing                   70          0.5            40          0.4            40          0.6           25        0.8
                                         (19)        (0.1)          (16)        (0.1)          (16)        (0.2)         (11)      (0.4)
EIC phase-in range                    7,150         47.1         3,.875        36.1          2,120        30.8           810       25.5
                                       (259)        (1.0)          (177)       (1.2)          (115)       (1.4)          (63)      (1.7)
EIC plateau range                     2,675         17.6         1,770         16.5            960        14.0           360       11.3
                                       (115)        (0.7)          (98)        (0.8)           (71)       (0.9)          (42)      (1.3)
EIC phase-out range                   1,995         13.1         1,965         18.3          1,440        20.9           815       25.7
                                        (98)        (0.6)         (101)        (0.9)           (87)       (1.1)          (63)      (1.7)
EIC limit to 10% over limit             115           0.8          100           0.9            40          0.6           35        1.1
                                        (24)         (0.2)         (22)         (0.2)          (14)        (0.2)         (13)      (0.4)
10 to 25% over EIC limit                  70          0.5          125           1.2            85          1.2           35        1.1
                                         (19)        (0.1)         (27)         (0.2)          (22)        (0.3)         (13)      (0.4)
25 to 50% over EIC limit                  80          0.5          155           1.4           110          1.6           60        1.9
                                         (20)        (0.1)         (28)         (0.3)          (23)        (0.3)         (17)      (0.5)
50% or more over the EIC limit          160           1.1          205           1.9           245          3.6          150        4.7
                                        (28)         (0.2)         (34)         (0.3)          (37)        (0.5)         (27)      (0.8)
Total                                15,195         100.0%      10,745        100.0%         6,875       100.0%        3,175      100.0%
                                       (337)                      (269)                       (199)                     (119)
                                          Note: Percentages may not add to total due to rounding.

                                          Source: GAO analysis of SOI and IMF data.




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Table III.12: Reported Income of Tax Year 1990 EIC Phase-in Range Claimants, for Tax Years 1991 Through 1994, Number
and Percentage of Claimants by Income Range
Number of claims in thousands

Standard errors in parentheses
                                                                             Tax years
                                        1991                       1992                      1993                        1994
                                 Number of                  Number of                 Number of                   Number of
Income range                      claimants    Percent       claimants    Percent      claimants      Percent      claimants    Percent
Claimant did not file a return         635         20.0           775        24.4           865          27.2           885        27.9
                                       (56)        (1.6)          (61)       (1.7)          (65)         (1.8)          (66)       (1.8)
AGI negative or missing                  30          0.9            20         0.6            20           0.6            25        0.8
                                        (12)        (0.4)          (10)       (0.3)          (10)         (0.3)          (11)      (0.4)
EIC phase-in range                    1,495        47.1         1,160        36.5         1,060          33.4           810        25.5
                                        (84)       (2.0)          (75)       (1.9)          (72)         (1.9)          (63)       (1.7)
EIC plateau range                      570         18.0           565        17.8           485          15.3           360        11.3
                                       (53)        (1.5)          (53)       (1.5)          (49)         (1.4)          (42)       (1.3)
EIC phase-out range                    360         11.3           475        15.0           535          16.9           815        25.7
                                       (42)        (1.3)          (48)       (1.4)          (51)         (1.5)          (63)       (1.7)
EIC limit to 10% over limit              25          0.8            35         1.1            25           0.8            35        1.1
                                        (11)        (0.4)          (13)       (0.4)          (11)         (0.4)          (13)      (0.4)
10 to 25% over EIC limit                15           0.5            40         1.3            20           0.6            35        1.1
                                        (9)         (0.3)          (14)       (0.4)          (10)         (0.3)          (13)      (0.4)
25 to 50% over EIC limit                 25          0.8            35         1.1            25           0.8            60        1.9
                                        (11)        (0.4)          (13)       (0.4)          (11)         (0.4)          (17)      (0.5)
50% or more over the EIC limit           20          0.6            70         2.2          140            4.4          150         4.7
                                        (10)        (0.3)          (19)       (0.6)         (26)          (0.8)         (27)       (0.8)
Total                                 3,175        100.0%       3,175       100.0%        3,175         100.0%        3,175       100.0%
                                       (119)                     (119)                     (119)                       (119)
                                         Source: GAO analysis of SOI and IMF data.




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Table III.13: Reported Income of Tax
Year 1991 EIC Phase-in Range           Number of claims in thousands
Claimants for Tax Years 1992 Through
1994, Number and Percentage of         Standard errors in parentheses
Claimants by Income Range                                                                    Tax years
                                                                     1992                        1993                 1994
                                                             Number of          Number of         Number of
                                       Income range           claimants Percent claimants Percent claimants Percent
                                       Claimant did not              695        18.8             850     23.0         970      26.2
                                       file a return                 (58)       (1.4)            (64)    (1.5)        (69)     (1.6)
                                       AGI negative or                15         0.4              10       0.3         20       0.5
                                       missing                        (9)       (0.2)             (7)     (0.2)       (10)     (0.3)
                                       EIC phase-in                1,725        46.6         1,425       38.5       1060       28.6
                                       range                         (90)       (1.8)          (82)      (1.8)       (72)      (1.7)
                                       EIC plateau range             700        18.9             645     17.4         475      12.8
                                                                     (58)       (1.4)            (56)    (1.4)        (48)     (1.2)
                                       EIC phase-out                 450        12.2             590     15.9         905      24.5
                                       range                         (47)       (1.2)            (54)    (1.3)        (66)     (1.6)
                                       EIC limit to 10%               25         0.7              20       0.5         15       0.4
                                       over limit                    (11)       (0.3)            (10)     (0.3)        (9)     (0.2)
                                       10 to 25% over                 25         0.7              40       1.1         65       1.8
                                       EIC limit                     (11)       (0.3)            (14)     (0.4)       (18)     (0.5)
                                       25 to 50% over                 15         0.4              55       1.5         85       2.3
                                       EIC limit                      (9)       (0.2)            (17)     (0.4)       (21)     (0.6)
                                       50% or more over               50         1.4              65       1.8        105       2.8
                                       the EIC limit                 (16)       (0.4)            (18)     (0.5)       (23)     (0.6)
                                       Total                       3,700      100.0%         3,700       100.0%     3,700    100.0%
                                                                    (128)                     (128)                  (128)
                                       Note: Percentages may not add to total due to rounding.

                                       Source: GAO analysis of SOI and IMF data.




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Table III.14: Reported Income of Tax
Year 1992 EIC Phase-in Range           Number of claims in thousands
Claimants for Tax Years 1993 and
1994, Number and Percentage of         Standard errors in parentheses
Claimants by Income Range                                                                               Tax year
                                                                                             1993                    1994
                                                                                    Number of               Number of
                                       Income range                                    claims       Percent    claims       Percent
                                       Claimant did not file a return                       700        18.1         885        22.9
                                                                                            (58)       (1.4)        (66)       (1.5)
                                       AGI negative or missing                               15          0.4         10         0.3
                                                                                             (9)        (0.2)        (7)       (0.2)
                                       EIC phase-in range                                 1,940        50.1        1,290       33.3
                                                                                            (95)       (1.8)         (79)      (1.7)
                                       EIC plateau range                                    695        18.0         560        14.5
                                                                                            (58)       (1.4)        (52)       (1.3)
                                       EIC phase-out range                                  420        10.9         900        23.3
                                                                                            (46)       (1.1)        (66)       (1.5)
                                       EIC limit to 10% over limit                           25          0.6          45        1.2
                                                                                            (11)        (0.3)        (15)      (0.4)
                                       10 to 25% over EIC limit                              20          0.5          45        1.2
                                                                                            (10)        (0.3)        (15)      (0.4)
                                       25 to 50% over EIC limit                              15          0.4          65        1.7
                                                                                             (9)        (0.2)        (18)      (0.5)
                                       50% or more over the EIC limit                        40          1.0          70        1.8
                                                                                            (14)        (0.4)        (19)      (0.5)
                                       Total                                              3,870       100.0%       3,870      100.0%
                                                                                           (130)                    (130)
                                       Note: Percentages may not add to total due to rounding.

                                       Source: GAO analysis of SOI and IMF data.




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Table III.15: Reported Income of Tax
Year 1993 EIC Phase-in Range           Number of claims in thousands
Claimants for Tax Year 1994, Number
and Percentage of Claimants by         Standard errors in parentheses
Income Range                                                                                  Tax year 1994
                                                                                          Number of
                                       Income range                                          claims           Percent
                                       Claimant did not file a return                            850             19.1
                                                                                                 (64)            (1.3)
                                       AGI negative or missing                                    10              0.2
                                                                                                  (7)            (0.2)
                                       EIC phase-in range                                      1,990             44.7
                                                                                                 (96)            (1.7)
                                       EIC plateau range                                         710             16.0
                                                                                                 (59)            (1.2)
                                       EIC phase-out range                                       765             17.2
                                                                                                 (61)            (1.3)
                                       EIC limit to 10% over limit                                40              0.9
                                                                                                 (14)            (0.3)
                                       10 to 25% over EIC limit                                   10              0.2
                                                                                                  (7)            (0.2)
                                       25 to 50% over EIC limit                                   25              0.6
                                                                                                 (11)            (0.3)
                                       50% or more over the EIC limit                             50              1.1
                                                                                                 (16)            (0.4)
                                       Total                                                   4,450            100.0%
                                                                                                (138)
                                       Source: GAO analysis of SOI and IMF data.




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Table III.16: Reported Income for EIC Phase-Out Range Claimants, Averages for 1 to 4 Years After a Claim, Number and
Percentage of Claimants by Income Range
Number of claims in thousands

Standard errors in parentheses
                                                                 Number of years after an EIC claim
                                        1 year                     2 years                    3 years                   4 years
                                 Number of                   Number of                  Number of                  Number of
Income range                        claims       Percent        claims     Percent         claims      Percent        claims    Percent
Claimant did not file a return          935           3.4        1,455           7.1         1,310          9.7          780       12.0
                                        (68)         (0.2)         (90)         (0.4)          (88)        (0.6)         (62)      (0.9)
AGI negative or missing                  45           0.2           40           0.2            55          0.4           20        0.3
                                        (17)         (0.1)         (14)         (0.1)          (17)        (0.1)         (10)      (0.2)
EIC phase-in range                    1,845           6.7        1,665           8.2         1,165          8.6          580        8.9
                                        (95)         (0.3)         (96)         (0.5)          (81)        (0.6)         (53)      (0.8)
EIC plateau range                     2,125           7.8        1,590           7.8           925          6.8          315        4.8
                                       (102)         (0.4)         (94)         (0.4)          (70)        (0.5)         (39)      (0.6)
EIC phase-out range                  18,130         66.1        11,335         55.6          6,880        50.8         3,190       49.1
                                       (415)        (0.7)         (308)        (0.9)          (210)       (1.1)         (120)      (1.4)
EIC limit to 10% over limit           1,430           5.2        1,190           5.8           705          5.2          300        4.6
                                        (85)         (0.3)         (81)         (0.4)          (62)        (0.4)         (39)      (0.6)
10 to 25% over EIC limit              1,200           4.4        1,100           5.4           735          5.4          335        5.2
                                        (77)         (0.3)         (78)         (0.4)          (62)        (0.4)         (41)      (0.6)
25 to 50% over EIC limit                850           3.1          860           4.2           700          5.2          395        6.1
                                        (64)         (0.2)         (68)         (0.3)          (60)        (0.4)         (44)      (0.7)
50% or more over the EIC limit          855           3.1        1,150           5.6         1,065          7.9          580        8.9
                                        (64)         (0.2)         (82)         (0.4)          (81)        (0.6)         (53)      (0.8)
Total                                27,415         100.0%      20,385        100.0%       13,540        100.0%        6,495      100.0%
                                       (457)                      (369)                      (271)                      (160)
                                          Note: Percentages may not add to total due to rounding.

                                          Source: GAO analysis of SOI and IMF data.




                                          Page 53                                                   GAO/GGD-97-69 Earned Income Credit
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                                         Detailed Data Tables




Table III.17: Reported Income of Tax Year 1990 EIC Phase-Out Range Claimants for Tax Years 1991 Through 1994, Number
and Percentage of Claimants by Income Range
Number of claims in thousands

Standard errors in parentheses
                                                                              Tax years
                                        1991                       1992                        1993                     1994
                                 Number of                  Number of                  Number of                  Number of
Income range                        claims     Percent         claims     Percent         claims      Percent        claims    Percent
Claimant did not file a return         205           3.2          495           7.6           640          9.9          780       12.0
                                       (32)         (0.5)         (49)         (0.7)          (56)        (0.8)         (62)      (0.9)
AGI negative or missing                  5           0.1             5          0.1            25          0.4           20        0.3
                                        (5)         (0.1)           (5)        (0.1)          (11)        (0.2)         (10)      (0.2)
EIC phase-in range                     510           7.9          575           8.9           670        10.3           580        8.9
                                       (50)         (0.7)         (53)         (0.8)          (57)       (0.8)          (53)      (0.8)
EIC plateau range                      625           9.6          590           9.1           605          9.3          315        4.8
                                       (55)         (0.8)         (54)         (0.8)          (54)        (0.8)         (39)      (0.6)
EIC phase-out range                  4,175         64.3         3,465         53.3          3,025        46.6         3,190       49.1
                                      (134)        (1.3)         (124)        (1.4)          (117)       (1.4)         (120)      (1.4)
EIC limit to 10% over limit            350           5.4          435           6.7           365          5.6          300        4.6
                                       (42)         (0.6)         (46)         (0.7)          (42)        (0.6)         (39)      (0.6)
10 to 25% over EIC limit               250           3.8          330           5.1           390          6.0          335        5.2
                                       (35)         (0.5)         (40)         (0.6)          (44)        (0.7)         (41)      (0.6)
25 to 50% over EIC limit               180           2.8          255           3.9           295          4.5          395        6.1
                                       (30)         (0.5)         (36)         (0.5)          (38)        (0.6)         (44)      (0.7)
50% or more over the EIC limit         195           3.0          345           5.3           480          7.4          580        8.9
                                       (31)         (0.5)         (41)         (0.6)          (49)        (0.7)         (53)      (0.8)
Total                                6,495         100.0%       6,495        100.0%         6,495       100.0%        6,495      100.0%
                                      (160)                      (160)                       (160)                     (160)
                                         Note: Percentages may not add to total due to rounding.

                                         Source: GAO analysis of SOI and IMF data.




                                         Page 54                                                   GAO/GGD-97-69 Earned Income Credit
                                       Appendix III
                                       Detailed Data Tables




Table III.18: Reported Income of Tax
Year 1991 EIC Phase-Out Range          Number of claims in thousands
Claimants for Tax Years 1992 Through
1994, Number and Percentage of         Standard errors in parentheses
Claimants by Income Range                                                                    Tax years
                                                                     1992                        1993                 1994
                                                             Number of         Number of         Number of
                                       Income range             claims Percent    claims Percent    claims Percent
                                       Claimant did not              255         3.6             485       6.9        670       9.5
                                       file a return                 (36)       (0.5)            (49)     (0.7)       (57)     (0.8)
                                       AGI negative or                20         0.3              10       0.1         30       0.4
                                       missing                       (10)       (0.1)             (7)     (0.1)       (12)     (0.2)
                                       EIC phase-in                  480         6.8             590       8.4        495       7.0
                                       range                         (49)       (0.7)            (54)     (0.7)       (49)     (0.7)
                                       EIC plateau range             635         9.0             675       9.6        320       4.5
                                                                     (56)       (0.8)            (57)     (0.8)       (40)     (0.6)
                                       EIC phase-out               4,470        63.4         3,720       52.8       3,855      54.7
                                       range                        (138)       (1.3)         (128)      (1.3)       (130)     (1.3)
                                       EIC limit to 10%              470         6.7             465       6.6        340       4.8
                                       over limit                    (48)       (0.7)            (48)     (0.7)       (41)     (0.6)
                                       10 to 25% over                260         3.7             375       5.3        345       4.9
                                       EIC limit                     (36)       (0.5)            (43)     (0.6)       (41)     (0.6)
                                       25 to 50% over                215         3.1             265       3.8        405       5.7
                                       EIC limit                     (33)       (0.5)            (36)     (0.5)       (45)     (0.6)
                                       50% or more over              240         3.4             460       6.5        585       8.3
                                       the EIC limit                 (35)       (0.5)            (48)     (0.7)       (54)     (0.7)
                                       Total                       7,045      100.0%         7,045       100.0%     7,045    100.0%
                                                                    (165)                     (165)                  (165)
                                       Note: Percentages may not add to total due to rounding.

                                       Source: GAO analysis of SOI and IMF data.




                                       Page 55                                                   GAO/GGD-97-69 Earned Income Credit
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                                       Detailed Data Tables




Table III.19: Reported Income of Tax
Year 1992 EIC Phase-Out Range          Number of claims in thousands
Claimants for Tax Years 1993 and
1994, Number and Percentage of         Standard errors in parentheses
Claimants by Income Range                                                                                Tax years
                                                                                                1993                   1994
                                                                                    Number of                  Number of
                                       Income range                                    claims          Percent    claims      Percent
                                       Claimant did not file a return                       215            3.1        475         6.9
                                                                                            (33)          (0.5)       (48)       (0.7)
                                       AGI negative or missing                                  10         0.1          25        0.4
                                                                                                (7)       (0.1)        (11)      (0.2)
                                       EIC phase-in range                                   460            6.7        500         7.3
                                                                                            (48)          (0.7)       (50)       (0.7)
                                       EIC plateau range                                    595            8.7        325         4.7
                                                                                            (54)          (0.8)       (40)       (0.6)
                                       EIC phase-out range                                4,445           64.9       4,150       60.6
                                                                                           (138)          (1.3)       (134)      (1.3)
                                       EIC limit to 10% over limit                          340            5.0        290         4.2
                                                                                            (41)          (0.6)       (38)       (0.5)
                                       10 to 25% over EIC limit                             355            5.2        395         5.8
                                                                                            (42)          (0.6)       (44)       (0.6)
                                       25 to 50% over EIC limit                             220            3.2        340         5.0
                                                                                            (33)          (0.5)       (41)       (0.6)
                                       50% or more over the EIC limit                       205            3.0        345         5.0
                                                                                            (32)          (0.5)       (41)       (0.6)
                                       Total                                              6,845          100.0%      6,845      100.0%
                                                                                           (163)                      (163)
                                       Note: Percentages do not add to total due to rounding.

                                       Source: GAO analysis of SOI and IMF data.




                                       Page 56                                                    GAO/GGD-97-69 Earned Income Credit
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                                       Detailed Data Tables




Table III.20: Reported Income of Tax
Year 1993 EIC Phase-Out Range          Number of claims in thousands
Claimants for Tax Year 1994, Number
and Percentage of Claimants by         Standard errors in parentheses
Income Range                                                                                               Tax year 1994
                                                                                                       Number of
                                       Income range                                                       claims           Percent
                                       Claimant did not file a return                                         260              3.7
                                                                                                              (36)            (0.5)
                                       AGI negative or missing                                                 10              0.1
                                                                                                               (7)            (0.1)
                                       EIC phase-in range                                                     395              5.6
                                                                                                              (44)            (0.6)
                                       EIC plateau range                                                      270              3.8
                                                                                                              (37)            (0.5)
                                       EIC phase-out range                                                  5,040             71.7
                                                                                                             (145)            (1.2)
                                       EIC limit to 10% over limit                                            270              3.8
                                                                                                              (37)            (0.5)
                                       10 to 25% over EIC limit                                               335              4.8
                                                                                                              (41)            (0.6)
                                       25 to 50% over EIC limit                                               235              3.3
                                                                                                              (34)            (0.5)
                                       50% or more over the EIC limit                                         215              3.1
                                                                                                              (33)            (0.5)
                                       Total                                                                7,030            100.0%
                                                                                                             (165)
                                       Note: Percentages do not add to total due to rounding.

                                       Source: GAO analysis of SOI and IMF data.




                                       Tables III.21 to III.23 provide data on taxpayers who at some point stopped
Taxpayers Who                          claiming the EIC. Table III.21 provides averages of the proportion of
Stopped Claiming the                   taxpayers who stopped claiming the EIC and filed a return, by income
EIC                                    range, along with the proportion who stopped claiming the credit and did
                                       not file a return in the year off the EIC. Table III.22 provides additional data
                                       on changes in filing status for those who filed a return in the year off the
                                       EIC. Table III.23 includes specifics on the type of filing status change, by
                                       income range.




                                       Page 57                                                  GAO/GGD-97-69 Earned Income Credit
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                                        Detailed Data Tables




Table III.21: EIC Claimants’ Reported
Income in the First and Second          Number of departures from the EIC in thousands
Consecutive Years Off the Credit,
Averages for Tax Years 1991 Through     Standard errors in parentheses
1994, Number and Percentage of                                                                                      Second consecutive
Departures by Income Range                                                            First year off the EIC          year off the EIC
                                                                                     Number of                 Number of
                                        Income range                                 departures        Percent departures          Percent
                                        AGI negative or missing                               135            0.9             75             0.9
                                                                                              (27)          (0.2)           (19)           (0.2)
                                        In the EIC range                                    4,575          31.3          2,160             25.5
                                                                                             (143)         (0.9)          (100)            (1.1)
                                        Up to 10% over the EIC limit                        1,645          11.2            620              7.3
                                                                                              (91)         (0.6)           (55)            (0.6)
                                        10 to 25% over the EIC limit                        1,375            9.4           750              8.9
                                                                                              (82)          (0.5)          (60)            (0.7)
                                        25 to 50% over the EIC limit                        1,010            6.9           755              8.9
                                                                                              (70)          (0.5)          (61)            (0.7)
                                        50% or more over the EIC limit                      1,175            8.0         1,155             13.7
                                                                                              (76)          (0.5)          (75)            (0.8)
                                        Did not file a return                               4,720          32.3          2,940             34.8
                                                                                             (147)         (0.9)          (115)            (1.2)
                                        Total Departuresa                                  14,635         100.0%         8,455        100.0%
                                                                                             (214)                        (175)
                                        a
                                         Of the 14,635,000 departures from the credit 1 year after a claim, 3,480,000 were from tax year
                                        1990 to 1991, 3,900,000 were from tax year 1991 to 1992, 3,500,000 were from tax year 1992 to
                                        1993 and 3,755,000 were from tax year 1993 to 1994. Of the 8,455,000 2-consecutive year
                                        departures from the EIC, 2,820,000 were from tax year 1990 to 1992, 2,990,000 were from tax
                                        year 1991 to 1993 and 2,645,000 were from tax year 1992 to 1994.

                                        Source: GAO analysis of SOI and IMF data




                                        Page 58                                                    GAO/GGD-97-69 Earned Income Credit
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Detailed Data Tables




Page 59                GAO/GGD-97-69 Earned Income Credit
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                                              Detailed Data Tables




Table III.22: EIC Claimants Reporting the Same or Different Filing Status in the First and Second Consecutive Years Off the
Credit, by Income Range, Averages for Tax Year 1991 Through 1994 Departures From the Credit
Number of claims in thousands

Standard errors in parentheses
                                                                      First year off the EIC
                               Reported the same filing status Reported a different filing status               Total
                                   Number of                         Number of                          Number of
Income range                       departures           Percent      departures           Percent       departures         Percent
AGI negative or missing                   120               1.2              15                 0.2            135              1.4
                                          (25)             (0.3)             (9)               (0.1)           (27)           (0.3)
In the EIC range                        2,165              21.8           2,410                24.3          4,575            46.1
                                         (102)             (0.9)           (106)               (1.0)          (143)           (1.1)
Up to 10% over the EIC limit            1,345              13.6             300                 3.0          1,645            16.6
                                          (83)             (0.8)            (39)               (0.4)           (91)           (0.8)
10 to 25% over the EIC limit            1,165              11.7             210                 2.1          1,375            13.9
                                          (76)             (0.7)            (32)               (0.3)           (82)           (0.8)
25 to 50% over the EIC limit              780               7.9             230                 2.3          1,010            10.2
                                          (62)             (0.6)            (34)               (0.3)           (70)           (0.7)
50% or more over the EIC                  585               5.9             590                 6.0          1,175            11.9
limit                                     (54)             (0.5)            (54)               (0.5)           (76)           (0.7)
Total                                   6,160              62.1%          3,755                37.9%         9,915          100.0%
                                         (167)             (1.1)           (130)               (1.1)          (195)




                                              Page 60                                            GAO/GGD-97-69 Earned Income Credit
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                                      Detailed Data Tables




                                          Second consecutive year off the EIC
Reported the same filing status              Reported a different filing status                       Total
      Nuumber of                                    Number of                                 Number of
       departures            Percent                departures                Percent         departures            Percent
               60                  1.1                        15                   0.3                75                 1.4
              (17)                (0.3)                       (9)                 (0.2)              (19)               (0.3)
              850                 15.4                     1,310                  23.8             2,160                39.2
              (64)                (1.1)                      (79)                 (1.3)             (100)               (1.5)
              485                  8.8                       135                   2.4               620                11.2
              (49)                (0.9)                      (26)                 (0.5)              (55)               (1.0)
              625                 11.3                       125                   2.3               750                13.6
              (55)                (1.0)                      (25)                 (0.4)              (60)               (1.0)
              510                  9.2                       245                   4.4               755                13.7
              (50)                (0.9)                      (35)                 (0.6)              (61)               (1.0)
              645                 11.7                       510                   9.2             1,155                20.9
              (56)                (1.0)                      (50)                 (0.9)              (75)               (1.2)
            3,175                 57.6%                    2,340                  42.4%            5,515              100.0%
             (119)                (1.5)                     (104)                 (1.5)             (150)
                                      Source: GAO analysis of SOI and IMF data.




                                      Page 61                                             GAO/GGD-97-69 Earned Income Credit
                                           Appendix III
                                           Detailed Data Tables




Table III.23: Type of Filing Status
Change From the Year of an EIC Claim       Number of taxpayers in thousands
to the First Year Off the EIC, by Income
Range, Averages for Tax Years 1990         Standard errors in parentheses
Through 1994
                                                                                                               Single
                                           AGI reported in the first   Filing status in the year           Number
                                           year off the EIC            of the EIC claim                   of claims      Percent
                                           Below the EIC limit         Head of household                      1,585         65.4
                                                                                                                (87)        (2.2)
                                                                       Married filing jointly                   190           7.8
                                                                                                                (31)        (1.2)
                                                                       Single

                                                                       Qualified widow(er)                       15           0.6
                                                                                                                 (9)        (0.4)
                                                                       Total                                  1,790         73.8
                                                                                                                (92)        (2.0)
                                           Above the EIC limit         Head of household                        210         15.8
                                                                                                                (32)        (2.2)
                                                                       Married filing jointly                    10           0.8
                                                                                                                 (7)        (0.5)
                                                                       Single

                                                                       Qualified widow(er)
                                                                                                                  0           0.0
                                                                       Total                                    220         16.5
                                                                                                                (33)        (2.3)
                                           All claims with a filing    Head of household                      1,795         47.8
                                           status change                                                        (92)        (1.8)
                                                                       Married filing jointly                   200           5.3
                                                                                                                (32)        (0.8)
                                                                       Single

                                                                       Qualified widow(er)                       15           0.4
                                                                                                                 (9)        (0.2)
                                                                       Total                                  2,010         53.5
                                                                                                                (97)        (1.8)




                                           Page 62                                              GAO/GGD-97-69 Earned Income Credit
                                          Appendix III
                                          Detailed Data Tables




                            Filing status the first year off the EIC
Married filing jointly           Married filing separately               Head of household                          Total
  Number                            Number                                Number                               Number
 of claims          Percent         of claims          Percent           of claims            Percent         of claims       Percent
       165                6.8             165                6.8                                                  1,915           79.0
       (29)              (1.1)            (29)              (1.1)                                                   (95)          (1.9)
                                          215                8.9                 35                  1.4           440            18.1
                                          (33)              (1.3)               (13)                (0.5)          (47)           (1.8)
         15               0.6                5               0.2                 20                  0.8             40            1.6
         (9)             (0.4)              (5)             (0.2)               (10)                (0.4)           (14)          (0.6)
                                                             0.0                 15                  0.6             30            1.2
          0               0.0                0                                   (9)                (0.4)           (12)          (0.5)
       180                7.4             385              15.9                  70                  2.9          2,425
       (30)              (1.2)            (44)             (1.7)                (19)                (0.8)          (107)        100.0%
       960               72.2               25               1.9                                                  1,195           89.8
       (69)              (2.7)             (11)             (0.8)                                                   (76)          (1.9)
                                            10               0.8                 20                  1.5             40            3.0
                                            (7)             (0.5)               (10)                (0.7)           (14)          (1.0)
         70               5.3                                                    20                  1.5             90            6.8
        (19)             (1.4)               0               0.0                (10)                (0.7)           (21)          (1.5)
                                             0                                    5                  0.4              5            0.4
          0               0.0                                0.0                 (5)                (0.4)            (5)          (0.4)
      1,030              77.4               35               2.6                 45                  3.4          1,330
        (71)             (2.6)             (13)             (1.0)               (15)                (1.1)           (80)        100.0%
      1,125              30.0             190                5.1                                                  3,110           82.8
        (74)             (1.7)            (31)              (0.8)                                                  (119)          (1.4)
                                          225                6.0                 55                  1.5           480            12.8
                                          (34)              (0.9)               (17)                (0.4)          (49)           (1.2)
         85               2.3                5               0.1                 40                  1.1           130             3.5
        (21)             (0.5)              (5)             (0.1)               (14)                (0.4)          (25)           (0.7)
                                                                                 20                  0.5             35            0.9
          0               0.0                0               0.0                (10)                (0.3)           (13)          (0.4)
      1,210              32.2             420              11.2                115                   3.1          3,755
        (77)             (1.7)            (46)             (1.2)               (24)                 (0.6)          (130)        100.0%
                                          Note: Percentages may not add to total due to rounding.

                                          Source: GAO analysis of SOI and IMF data.




                                          Page 63                                                   GAO/GGD-97-69 Earned Income Credit
Appendix IV

Major Contributors to This Report


                     David Attianese, Assistant Director
General Government   Patricia McGuire, Assistant Director, Information Services
Division             Deborah Parker Junod, Evaluator-in-Charge
                     Joanne Parker, Senior Social Science Analyst
                     Mary Phillips, Senior Evaluator
                     James Fields, Senior Social Science Analyst
                     Kim Wheeler, Graphics Specialist




                     Page 64                                    GAO/GGD-97-69 Earned Income Credit
Appendix IV
Major Contributors to This Report




Page 65                             GAO/GGD-97-69 Earned Income Credit
Appendix IV
Major Contributors to This Report




Page 66                             GAO/GGD-97-69 Earned Income Credit
Appendix IV
Major Contributors to This Report




Page 67                             GAO/GGD-97-69 Earned Income Credit
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              Earned Income Credit: Noncompliance and Potential Eligibility Revisions
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              Earned Income Credit: Targeting to the Working Poor (GAO/GGD-95-122BR,
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              Earned Income Credit: Targeting to the Working Poor (GAO/T-GGD-95-136,
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              Tax Administration: Earned Income Credit—Data on Noncompliance and
              Illegal Alien Recipients (GAO/GGD-95-27, Oct. 25, 1994).

              Tax Policy: Earned Income Tax Credit: Design and Administration Could
              Be Improved (GAO/GGD-93-145, Sept. 24, 1993).




(268747)      Page 68                                    GAO/GGD-97-69 Earned Income Credit
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