The voices of Urban Institute's researchers and staff
June 7, 2016

Tax credits could reduce poverty even more—by including workers without children at home

June 7, 2016

Throughout June, Urban Institute scholars will offer evidence-based ideas for reducing poverty and increasing opportunity.

In 2016, the earned income tax credit (EITC) will provide credits up to $3,373 for families with one child living at home. Larger families can receive greater credits. On top of that, families can receive a credit up to $1,000 per child from the child tax credit (CTC). Together, these benefits will lift many families with children out of poverty (according to the Census Bureau’s supplemental poverty measure, which accounts for taxes).

But because these two credits benefit families with children almost exclusively, most workers without children living at home (“childless” in tax parlance) will see no benefit. Expanding the EITC to include more childless workers—or creating a worker credit for all low-income workers—could be powerful antipoverty tools for many workers left behind in the current system.

Workers receive an EITC equal to a percentage of their earnings up to a maximum credit. Both the credit rate and maximum credit vary by family size. After the credit reaches its maximum, it remains flat until earnings reach the phaseout point, where the credit declines with each additional dollar of income until no credit is available.

Earned Income Tax Credit, 2016

Once a person earns $3,000, he or she can receive a CTC worth 15 cents per dollar earned until that person reaches the credit maximum of $1,000 per child.

Partly in response to a safety net that has shifted toward the tax system (largely via the EITC and CTC), the Census Bureau developed the supplemental poverty measure. Using that measure, the Census Bureau calculates that in 2014, tax credits represented the second largest antipoverty program in the United States (behind Social Security), reducing poverty from 18.6 percent to 15.8 percent.

To date, tax assistance has had almost no effect on childless workers and nonworkers. For childless workers, there’s a relatively easy fix: expand the childless EITC or create a credit based solely on earnings without regard to the number of children living at home. Using the tax system to reduce poverty for nonworkers would likely require people who currently do not need to file taxes to begin doing so—and may be a leap too far, administratively.

For the EITC to be effective for childless workers, two things must happen. The maximum benefit (now just $506) needs to be increased, and the income range to which it applies must be expanded. At present, the childless EITC phases out entirely before the phaseout for workers with children even begins: a single, full-time minimum-wage worker without children qualifies for no EITC. Compare this with a full-time minimum-wage worker with children who can receive the maximum EITC ranging from $3,373 (one child) to $6,269 (three or more children). To be even more inclusive, the age limits that apply only to workers without children (who must be ages 25 to 64 to benefit from the EITC) could be removed or expanded.

Several proposals to expand the childless EITC exist, including one already proposed by Speaker Ryan (which is nearly identical to the one proposed by President Obama in recent budgets). Another option would be to create a worker credit for all low-income workers. I show how to do so here.

Working-age men without children living at home are much less likely to be employed than men with children at home. Analysts believe that a substantial work-related credit could encourage these men to work, which in turn, would likely reduce poverty. Improving work incentives for all workers might be just the “Better Way” Speaker Ryan and House Republican leadership seek.

Zina Mixx, 44, who is homeless, fills out a job application in a  South Florida Mobile Workforce van at the Community Partnership for the Homeless in Homestead, Fla. Thursday Aug. 6, 2009. Mixx has been unemployed since she lost her waitress job in April. Photo by Lynne Sladky/AP

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