We examine how proposals to modify and expand the EITC would change its impacts during economic downturns. Using components from the Economic Security Project’s Cost-of-Living Refund, we identify three main effects. First, accelerating the credit phase-in (or eliminating it entirely) would reduce instances in which credit amounts decline during downturns. That would make the credit a more effective automatic stabilizer. Second, increasing the size of the credit and expanding eligibility would provide one-time stimulus when first enacted. That stimulus would be better targeted to people with low incomes than some other proposals such as payroll tax holidays. If an EITC expansion were made permanent, it would provide less stimulus in future downturns but would provide more consistent economic assistance. If the expansion included childless workers (many of whom do not file taxes today), it would make it easier for policymakers to deliver special payments in future recessions (much as the initial round of CARES Act rebates is doing today). Finally, advancing credit payments could provide faster financial assistance to beneficiaries in a downturn. Unless the advance was structured as an additional payment, that gain would be offset by a reduction in financial assistance at some point in the future when the remaining credit was computed.
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