Urban Wire Expanding the earned income tax credit could encourage, rather than require, more work
Elaine Maag
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In a recent report that claimed the War on Poverty is “largely over and a success,” the President’s Council of Economic Advisers (CEA) said that expanding work requirements for safety net programs would be the most effective way to lead more Americans to enter the workforce. At the same time, the report discounts the potential of the earned-income tax credit (EITC) to help accomplish that goal.

Strong evidence shows that the earned income tax credit (EITC) has been an effective tool to increase work and reduce poverty, but as designed today, most benefits go to families with children. Policymakers could consider expanding the benefits of the EITC to low-income workers without custodial children. Policymakers on both sides of the aisle have previously favored an expansion like this.

How does the EITC work?

The EITC lifts more people out of poverty every year than any other government program outside of Social Security when it is counted as income. It works in two dimensions:

  • Encouraging people to start working and to work more hours, and
  • Directly adding income to a worker’s household through the refundable tax credit.

The benefits of the EITC extends almost exclusively to families with children. In 2017, the Tax Policy Center estimated that 98 percent of benefits from the EITC went to families with children, with the credit providing much less benefit for individuals without children living at home.

Not only is the EITC for workers without children relatively small compared to that for workers with children ($519 maximum credit compared to $6,431 for workers with at least three children) it phases out entirely once a single worker earns $15,270, a much lower income level than for a single parent with at least three children, $49,000.

labor force participation rate

People without children at home are much less likely to be working or looking for work than parents with children at home (see figure above). So rather than proposing work requirements, there’s a strong underlying policy rationale for making sure they face the same work incentives that have been effective for workers with children. That would mean extending a substantial EITC to workers without children.

Policies should be crafted in an equitable way

While the CEA report offers an endorsement of expanding the EITC for workers without custodial children, it does so by offering the false notion that expanding the program to workers who do not currently benefit should only be done at the expense of those who already benefit.

At a time when Chairman of the House Ways and Means Committee Kevin Brady (R-TX) is suggesting extending the recent tax cuts (which disproportionately benefit wealthy taxpayers), with no mention of budget offsets, the notion that expansions of programs for low- and middle-income workers must be budget neutral seems very unfair. Furthermore, encouraging more Americans with low incomes to enter the workforce by expanding the EITC has proven effective. We should build on that success.

Research Areas Workforce
Tags Workforce development Workers in low-wage jobs Earned income tax credit Campaigns, proposals, and reforms U.S. tax issues Federal tax issues and reform proposals
Policy Centers Urban-Brookings Tax Policy Center
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