High-profile Democrats are floating ambitious proposals to reduce economic pressure on working Americans by expanding or supplementing tax credits for low- and middle-income families. These ideas have three goals: reducing poverty, supporting children, and encouraging work. But a recent analysis by Brookings Institution scholars Belle Sawhill and Christopher Pulliam warns that these aims are not necessarily consistent with one another and urges policymakers to acknowledge the potential tradeoffs. Lawmakers, they say, must design new or expanded tax credits with clear goals in mind.
Their paper looks at the benefits and costs of four different plans—two promoted by Democratic lawmakers, a fully refundable child tax credit I designed, and a new worker tax credit developed by Belle (that is similar to one I proposed). They find that benefits and costs vary significantly among the plans.
Today, the earned income tax credit (EITC) delivers about $70 billion in benefits annually to about 16 percent of all families. Almost 40 percent of families with children receive the credit, and nearly all of the credit goes to those families; very low-income noncustodial parents and childless workers receive a small share. The child tax credit (CTC) delivers $120 billion in annual benefits to about 29 percent of all families and 90 percent of families with children. Together, the credits lift 8.3 million people, including 4.5 million children, out of poverty each year.
Some lawmakers promoting additional assistance to workers and families would complement existing credits. For example, Senator Kamala Harris’s (D-CA) LIFT (Livable Incomes for Families Today) the Middle Class Act would provide a new credit for many workers—worth up to $3,000 for single workers and up to $6,000 for married couples—in addition to the current EITC.
Others would expand existing credits: For example, Senator Sherrod Brown (D-OH) and Representative Ro Khanna (D-CA) have proposed the Grow American Income Now (GAIN) Act that would provide an EITC of about $3,000 per year for workers without children (up from about $500 under today’s law) and roughly double the credit for workers with children (which now ranges from about $3,500 to $6,400, depending on the number of children).
Sawhill and Pulliam conclude that both legislative proposals support work by providing substantial assistance to many workers, in particular those without children at home who currently receive little to no benefit from existing tax credits. But the Brookings’ scholars also analyze how the proposals affect secondary earners, as well as how the tax system might best assist children. A credit based on an individual’s earnings most directly supports secondary earners. But benefits from this type of credit could be poorly targeted, benefiting higher-income families that include a member with low earnings. A very targeted proposal to expand the child tax credit would most efficiently help children most in need.
In some ways, the future of these proposals will be decided by which goal—poverty reduction, the well-being of children, or work—captures the imagination of voters and lawmakers. But Sawhill and Pulliam remind us that once Congress sets a goal, policymakers should be clear about what they’re setting out to do—and design policies that achieve that end most efficiently.
