Director of Federal Tax Policy
Update, March 4: We’ve just updated our in-depth analysis of recent proposals to strengthen the EITC for childless workers.
Building on calls from both sides of the aisle to expand help to low-income childless workers — the sole group of workers that the federal tax code taxes into (and, in many cases, deeper into) poverty — President Obama’s 2015 budget would strengthen the Earned Income Tax Credit (EITC) for this left-out group.
Next to Social Security, the EITC combined with the refundable portion of the Child Tax Credit constitutes the nation’s most powerful anti-poverty program. These two credits lifted 10.1 million people out of poverty in 2012. The EITC’s most glaring hole, however, is its almost complete exclusion of childless workers (that is, childless adults and non-custodial parents).
The President’s proposal would expand the tiny childless workers’ EITC considerably, raising the maximum credit to about $1,000 from its current $500 (which few childless workers are eligible for) and raising the income limit to qualify for the credit from less than $15,000 to about $18,000 in 2015.
As the graph shows, for example, the credit for a childless adult with wages at the poverty line (projected at $12,566 in 2015) would rise from $171 to $841. For a childless adult working full time at the minimum wage (and earning $14,500), the credit would jump from $22 to $542 in 2015.
The proposal would also allow childless adults aged 21 to 25 to qualify for the EITC. Childless adults under 25 are now ineligible, a serious shortcoming given the importance of young people gaining a toehold in the economy. (It would raise the upper age limit from 65 to 67 as well.)
Expanding the childless workers’ EITC would help a diverse group of low-wage workers, from store clerks to child care workers to truck drivers to home and office cleaners. Just under half are women, and while many are young workers just starting out, we estimate that roughly 35 percent are at least 45 years old.
The benefits of a stronger EITC would go beyond raising their incomes and helping offset their federal taxes. Leading experts from across the political spectrum believe that an expanded credit would help address some of the challenges that less-educated young people (including young African-American men) face, such as low and falling labor-force participation rates, low marriage rates, and high incarceration rates.
The President proposes to offset the $60 billion cost of the proposal over 2015 to 2024 by eliminating tax breaks that allow some high-income people to pay much lower or no taxes on certain kinds of income, including the “carried interest” tax break and the “S corporation” loophole.
The EITC has enjoyed broad bipartisan support over the years because it helps low-income people struggling to make ends meet while encouraging work and personal responsibility. The President’s proposal would make it even better.