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The Ugly Truth Behind Obama's Budget The Ugly Truth Behind Obama's Budget

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The Next Economy | Big Questions

The Ugly Truth Behind Obama's Budget

By proposing to expand the earned-income tax credit to workers without children, the White House acknowledges that low wages aren't sufficient for many Americans.

(Chip Somodevilla/Getty)

photo of Nancy Cook
March 5, 2014

Over the past five-plus years, as the country has dug itself out of the Great Recession, U.S. workers with lower levels of income and education have not experienced much of an economic recovery. We all know the story by now. Workers' wages remain flat. The unemployment rate is twice as high for those with high school degrees, compared with college graduates. And too many of the jobs being created come from low-paying sectors like retail, home health care, or tourism and hospitality.

The latest budget proposal from President Obama, released Tuesday, tries to combat this by seeking to expand the earned-income tax credit for low-income workers without children. (Right now, this group can only claim up to $500 from this tax credit, with strict restrictions on age and income eligibility, whereas a family with children claimed an average of $2,905 from the same credit in 2011, according to the Center on Budget and Policy Priorities, a left-leaning think tank). 

Beyond the mechanics of how the tax credit would work, the administration's proposal is a huge yet subtle admission that the country's labor market remains too weak. The plan is basically a mea culpa, acknowledging that low-wage positions no longer cut it financially for a wide swath of Americans—and that they probably won't in the future either, unless the federal government somehow intervenes.

 

By expanding the earned-income tax credit for childless workers (including those between the ages of 21 and 24, a group that suffers from high unemployment), the Obama administration is trying to prop up a labor market and lift people out of poverty. The White House estimates that expanding the earned-income tax credit would boost the earnings of 13.5 million Americans. More importantly, it could help childless workers who've been largely left behind in the recovery: men without college degrees; young adults between the ages of 21 and 24 who are not in school; and older workers, ages 65 and 66, who continue to stay on the job.

The president's budget blueprint would let these low-income childless workers claim up to $1,000 a year, a benefit twice as generous as the current provision. (And, as an added bonus to the 2014 and 2016 political calculus, an expanded credit would overwhelmingly help workers in politically important states such as Florida, California, Illinois, Michigan, Ohio, Texas, and North Carolina). 

The president's budget proposal is not expected to get much political traction this spring, especially as lawmakers in Washington shift their focus to 2014 midterm elections and abandon any serious attempts at making policy. Yet just the fact that the Obama administration and Republicans like Sen. Marco Rubio are talking about ways to revamp the tax credit shows that members of both parties recognize the need to rethink the best way to help boost the earnings of working Americans, many of whom can no longer properly support themselves on wages alone.

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