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Rubio Proposal to Replace EITC Would Likely Come at Expense of Working-Poor Families with Children

We’ve explained that Senator Marco Rubio’s proposal to convert federal safety net programs into a mega-block grant would weaken the safety net.  His wage supplement proposal is seriously flawed as well:  it would help low-income childless workers — an important goal — but likely at the expense of low-income working families with children.

Senator Rubio proposes to replace the very successful Earned Income Tax Credit (EITC) with a “wage enhancement program” to supplement the earnings of low-wage workers.  Unlike the EITC, this new program (based on the limited information now available) apparently would give the same size wage supplement to workers regardless of whether they are single or married or have any children.

Currently, the EITC for families with children is much larger than the EITC for childless adults and phases out at higher income levels.  In addition, to limit cost and target benefits on families that need it most, the EITC is available to low-income working families based on the family’s total adjusted gross income, not each family member’s individual earnings.

It is heartening that Senator Rubio acknowledges that wages for many workers are too low to make ends meet and that government has an essential role in helping to address this problem.  And, he is right that low-wage childless adults in particular get too little help.

But unless Senator Rubio intends to spend much more on his proposed wage enhancement program than we now spend on the EITC, his proposal would have to dramatically cut the earnings supplements that the EITC now provides to low-income working families with children.

Here’s why.  Some 97 percent of the EITC goes to families with children; less than 3 percent goes to workers without children.  The Rubio proposal appears to envision that millions of childless adults who don’t qualify for the EITC now would qualify for the new wage subsidies.  Paying for those new benefits for childless adults would necessarily require cutting the EITC for workers with children, unless Senator Rubio intends to significantly increase overall federal spending in this area.

The EITC kept 6.5 million people — including 3.3 million children — above the poverty line in 2012 and reduced the severity of poverty for 8.3 million other children.  If we shift resources from the EITC for families with children to earnings supplements for workers without children, child poverty will rise.

Cutting the EITC for families with children would also weaken it as a work incentive for parents and diminish the longer-term positive impacts that income supplements such as the EITC have on children’s educational outcomes.

We strongly agree that expanding earnings supplements for low-income workers who aren’t raising children should be a priority.  It would reduce poverty among these workers.  It also could raise employment rates among single adults, as the larger EITC available to families with children has been shown to do among low-income parents.  That is why many analysts across the political spectrum (see here, here, and here) have called for expanding the childless workers’ EITC without cutting the EITC for families with children, as would occur under legislation that Senator Sherrod Brown (D-OH) and 32 co-sponsors have introduced in the Senate and Representative Richard Neal (D-MA) and 47 co-sponsors have introduced in the House.

Rather than expand help for low-income childless workers at the expense of children in low-income working families, we should finance such an expansion by paring back inefficient tax expenditures, which policymakers could do as part of tax reform.

The 50th anniversary of President Johnson’s call for a War on Poverty has prompted new discussions about poverty, opportunity, inequality, and mobility.  Although Senator Rubio’s specific recommendations are poorly designed, it’s helpful that discussion is starting on how to make further progress in reducing poverty.  We hope policymakers will look for opportunities for bipartisan agreement on some steps forward.