The Earned Income Tax Credit (EITC) is the nation’s largest cash assistance program for low-income workers. In 2007, 24.5 million families received $48.5 billion. But while childless families accounted for nearly a quarter of tax units claiming the credit, they got less than three percent of the tax benefits.
This is bad policy. Many studies have shown that the EITC encourages families with children—particularly single moms—to get jobs. The same might be true for childless men—if the credit provided substantial assistance.
Why the inequity under current law? Two reasons. First, childless workers can’t get a credit larger than $457—less than a tenth of the maximum credit for families with three or more children. Second, the credit for childless families goes only to those with very low incomes. Childless workers who earn more than $13,460 ($18,470 if married) can’t get any EITC. But the credit doesn’t even begin to decline for families with children until their income exceeds $16,450 ($21,460 if married)—and married couples with three or more children continue to get some credit until their income reaches $48,362.
Many plans would provide additional assistance to low-income childless families—Steve Holt and I devised one that would eliminate the current EITC, Child Tax Credit (CTC), and Making Work Pay credit and instead provide a 20 percent credit for individuals until they have earnings equivalent to working year-round, 30 hours a week, at the minimum wage. This would provide a maximum credit of $2,175. Families with children would receive a Child Credit that would fill-in the gap left by eliminating the CTC and provide the residual benefit these families currently receive under the EITC. It’s no wonder that proponents are pushing for change. A recent report by Robert Moffitt and John Karl Scholz attributes the rise in deep poverty in part to increasing numbers of very poor childless individuals. This, coupled with longstanding concerns over the decline in low-skill wages, makes renewed focus on government incentives to increase work important.
On the campaign trail, President Obama proposed three changes to the EITC : a modest increase in the income limit for the childless EITC; a higher credit rate for families with at least 3 children, and a higher threshold above which the credit phases out for married couples. The American Recovery and Reinvestment Act of 2009 accomplished the last two goals but failed to increase the childless EITC. It’s past time for the president to push hard for this expansion—or even something bigger.
