KEY TERMS

earned income tax credit (EITC)  a method of assisting the working poor through the tax system

effective income tax  percentage of total taxes paid divided by total income

estate tax  a tax imposed on the value of an inheritance

income  a flow of money received, often measured on a monthly or an annual basis

income inequality  when one group receives a disproportionate share of total income or wealth than others

Lorenz curve  a graph that compares the cumulative income actually received to a perfectly equal distribution of income; it shows the share of population on the horizontal axis and the cumulative percentage of total income received on the vertical axis

Medicaid  a federal–state joint program enacted in 1965 that provides medical insurance for certain (not all) low-income people, including the near-poor as well as those below the poverty line, and focusing on low-income families with children, the low-income elderly, and the disabled

near-poor  those who have incomes just above the poverty line

poverty  the situation of being below a certain level of income one needs for a basic standard of living

poverty line  the specific amount of income one requires for a basic standard of living

poverty rate  percentage of the population living below the poverty line

poverty trap  antipoverty programs set up so that government benefits decline substantially as people earn more income—as a result, working provides little financial gain

progressive tax system  a tax system in which the rich pay a higher percentage of their income in taxes, rather than a higher absolute amount

quintile  dividing a group into fifths, a method economists often use to look at distribution of income

redistribution  taking income from those with higher incomes and providing income to those with lower incomes

safety net  the group of government programs that provide assistance to the poor and the near-poor

Supplemental Nutrition Assistance Program (SNAP)  a federally funded program, started in 1964, in which each month poor people receive SNAP cards they can use to buy food

wealth  the sum of the value of all assets, including money in bank accounts, financial investments, a pension fund, and the value of a home