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Abstract

The earned income credit, enacted in the 1970s, was amended in 1996 to impose two changes in the disqualification rules. The 1996 legislation (1) reduced the investment income threshold that disqualifies a taxpayer for the earned income credit from $2350 to $2200 (and indexed the threshold for inflation based on the consumer price index for tax years beginning after 1996), and (2) added capital gain net income and net passive activity income to the definition of disqualified income, effective for tax years beginning after December 31, 1995.

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