Senior Director of Federal Tax Policy
With President Obama calling for expanding the Earned Income Tax Credit (EITC) for childless workers, as he did in last night’s State of the Union speech, Washington is now well-positioned to take this important step.
Support for such a step was already growing on both sides of the aisle, as we’ve recently explained. In fact, 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.
President Ford signed it into law, while President Reagan lauded it as one of our best anti-poverty programs and proposed and signed a major EITC expansion. More recently, former George W. Bush economic advisor Glenn Hubbard wrote, “Increasing the credit for childless workers to an amount closer to that for families with children would augment the direct work incentive and help counter poverty among the working poor.”
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, including 5.3 million children (see chart).
The EITC’s most glaring hole, however, is its almost complete exclusion of childless adults. A childless adult working full time at the minimum wage earns too much to receive the credit. Partly as a result, childless workers are the sole group of workers that the federal tax system taxes into — and in many cases, deeper into — poverty.
For childless workers who qualify for the EITC, the credit is very small, averaging just $270 a year. And the childless workers’ EITC is restricted to workers aged 25-64, so all childless workers under age 25 are ineligible for it. This is unfortunate given the low employment rates among less-skilled young workers and the importance of young people gaining a toehold in the economy.
Providing a more adequate EITC to low-income childless workers and lowering the eligibility age so younger workers can qualify, as CBPP’s Robert Greenstein recommended in his testimony before the House Budget Committee this week, would have several important benefits beyond raising these workers’ 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.
Some conservatives would strengthen the EITC as an alternative to any increase in the minimum wage, a position with which we strongly disagree. A strong EITC and an adequate minimum wage are complementary; we need both to ensure that work “pays” for those in low-wage jobs and thereby to bring more people into the labor force, as we explained in a recent analysis.
But that shouldn’t detract from the emerging consensus that better rewarding the work of low-income childless adults is a critical next step to alleviate poverty. As President Obama called for last night, it’s time for policymakers on both sides of the aisle to work together to accomplish this important task.