Deputy Director, Federal Tax Policy
As we’ve noted, expanding the Earned Income Tax Credit (EITC) for workers who aren’t raising children in the home would boost labor force participation, reduce poverty, and ensure that the benefits of economic growth are shared more broadly — especially if policymakers also raise the minimum wage. The President’s Council of Economic Advisers (CEA), the Organisation for Economic Co-operation and Development (OECD), and the International Monetary Fund (IMF) each recently urged U.S. lawmakers to strengthen the EITC for this group of workers.
The CEA examined the falling share of American men between ages 25 and 54 in the labor force and recommending boosting the EITC as one strategy to bring more men into the workforce and alleviate hardship:
Expanding the EITC for low-income childless workers and noncustodial parents, who currently receive only a small EITC or are ineligible altogether, would make work more rewarding for lower-skilled individuals, encouraging participation in the workforce. . . . This may be especially important for prime-age men, who have become less likely over time to have children.
The President’s proposal to expand the childless worker EITC would directly reduce poverty and hardship for more than 13 million low-income workers. Among the groups that would benefit most from the EITC expansion are a number of groups with low or declining labor force participation rates or for whom there are other compelling reasons to subsidize work. These groups include men without a college education, especially minority men; women working at low-wage jobs; young adults not enrolled in school; workers with disabilities; and older workers.
The President’s proposal to expand the EITC for workers not raising children in the home would provide vital assistance to a diverse group of low-wage workers in varied occupations in every state, as our new estimates show. A more robust proposal from Senate Finance Committee Democrat Sherrod Brown and House Ways and Means Committee Democrat Richard Neal would help a greater number of workers in each category.
The CEA also calls for raising the minimum wage to help reduce inequality and increase labor force participation.
The OECD previously called for strengthening the EITC for workers who are childless or not raising children in the home by expanding their credit and lowering the eligibility age from 25 to 21. As part of a suite of proposals aimed at “making growth more inclusive and sustainable,” the group’s newest report on the U.S. economy reiterates its recommendation to expand the EITC for childless workers, noting that such a move “would be more effective if supported by a higher minimum wage.” The OECD has often explained the complementary nature of the EITC and a higher federal minimum wage.
Finally, the IMF recently issued its report on the U.S. economy, focusing on “causes and consequences of falling labor force participation, an increasingly polarized income distribution, high levels of poverty, and weak productivity.”
Among its findings:
In the near term, a more generous earned income tax credit (including eligibility for workers without dependents, those under 25, and older workers that are not yet eligible for social security) combined with a higher federal minimum wage would help alleviate poverty. These two measures would have strong complementarities. The improvements in the EITC can work in tandem with the minimum wage to ensure a meaningful increase in after-tax earnings for the nation’s poorest households….
Improvements in the EITC could help address falling labor force participation rates and encourage work, the IMF also notes.
Discussion of strengthening the EITC or raising the minimum wage often focuses on one policy at the expense of the other. But as the three new reports underscore (and as we have pointed out at the federal and state levels), the two policies work together. Neither is enough by itself but, together, they can support work and reduce poverty.
That applies both broadly to these two policies and specifically to reforms designed to improve childless workers’ economic prospects. The EITC is a proven pro-work success story for workers with children, yet it largely leaves out working childless adults and non-custodial parents. Providing a more adequate EITC for these workers while raising the federal minimum wage would reduce poverty and inequality, and support work and opportunity.
Join my colleague Chuck Marr (@ChuckCBPP) and me (@dashching) tomorrow at 1pm EDT for a tweetchat. We’ll be answering questions about why the EITC should be expanded for workers not raising kids in the home. Follow along at #ExpandEITC.