As Americans filled out their tax forms this year, millions of low- and moderate-income working families benefited from the Earned Income Tax Credit. That's important to note on this April 15, Tax Day, because the EITC not only encourages and rewards work but lifts millions out of poverty.
That combination is the primary reason the EITC has enjoyed broad bipartisan support for decades and why successive presidents have worked to leave their own imprint on this tax credit. President Ford signed it into law, while President Reagan proposed and signed a major EITC expansion. Both presidents named Bush signed EITC increases as well, as did Presidents Clinton and Obama.
Still, there's a glaring hole in the EITC. While the tax credit reduces poverty among families with children by double-digit percentages, as a recent Congressional Research Service report found, it does little or nothing to help low-wage workers who aren't raising minor children. A "childless adult" working full time at the minimum wage — an annual income of just $14,500 — earns too much to receive the credit.
As a partial result of the now-limited EITC, childless workers are the sole group of workers that the federal tax system pushes into — or in many cases, deeper into — poverty.
For childless workers who do qualify for the existing EITC, the credit is very small, averaging just $270 a year. And the current childless workers' EITC is restricted to workers ages 25 to 64, so childless workers under age 25 are ineligible for it. That's unfortunate, given the low employment rates among less-skilled young workers and the importance of young people gaining a toehold in the economy.
Support has been growing on both sides of the aisle to strengthen the EITC to better help these childless workers. Prominent conservatives, including George W. Bush's former economic adviser Glenn Hubbard and the American Enterprise Institute's Michael Strain, have called for expanding the EITC for childless workers. On the other side of the political spectrum, Sens. Patty Murray, Sherrod Brown, and Dick Durbin have introduced proposals to strengthen the EITC for childless workers, as has Rep. Richard Neal. President Obama made a more robust EITC for this group a central part of his budget proposal.
The president's proposal would expand the childless workers' EITC considerably, raising the maximum credit to about $1,000 from its current $500 (for which few childless workers are eligible), while also expanding eligibility from those childless individuals earning less than $15,000 to childless workers who bring in about $18,000 in 2015. The proposal would also allow childless adults between the ages of 21 and 25 to qualify for the EITC.
The benefits of a stronger EITC would go beyond raising the incomes of childless workers and helping offset their federal taxes. Leading experts believe that an expanded credit would help address some of the challenges that less-educated young people face — such as low labor-force participation rates, low marriage rates, and high incarceration rates — by inducing more of them to work (and to do so in the above-ground economy). That is precisely what the larger, existing EITC for families with children has already done, especially for single parents.
Expanding the childless workers' EITC would help a diverse group of low-wage workers, from store clerks to child-care workers to truck drivers to home and office cleaners. Just under half of these workers are women, and while many are young workers just starting out, a significant share includes workers over the age of 45. The president's proposal to expand the EITC would benefit about 2 million African-American workers, 3.3 million Latino workers, and 7.2 million white workers.
Moreover, bolstering the EITC for childless workers will actually help many families. Many so-called "childless workers" are non-custodial parents who have financial and parenting obligations. The President's proposal to expand the EITC would benefit about 1.5 million noncustodial parents. Their children do better when these parents are working and are a positive force in their lives.
Additionally, many childless workers are future parents. Extending the EITC's pro-work benefits to them would boost their incomes today while improving their future ability to provide for their children. And a child's success also depends on his or her extended family and community. A stronger EITC for "childless" adults can support children's siblings, uncles, aunts, and grandparents, who may be considered "childless" for tax purposes even if they live in the same home as their younger relatives. By helping to increase work, and possibly improve marriage rates and reduce crime, a stronger EITC can also help strengthen the communities in which children live.
Right now, the EITC lifts millions of Americans out of poverty each year, but it leaves millions of others behind. Rewarding the work of low-income childless adults is an important next step to alleviate poverty.
It's time for policymakers on both sides of the aisle to work together to accomplish this task.
Chuck Marr is director of federal tax policy at the Center on Budget and Policy Priorities.
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