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.

President Obama's proposed FY15 budget would expand the Earned Income Tax Credit in an implicit admission that many low-wage working Americans cannot survive on their incomes alone.
National Journal
Nancy Cook
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Nancy Cook
March 5, 2014, 9:46 a.m.

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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