The Earned Income Tax Credit is one of the oldest and most successful federal anti-poverty programs, a refundable tax credit given to low-wage workers to increase their standard of living, offset the burden of paying federal and local taxes and increase the incentive for people with lower incomes to work more. While the EITC has been a great success since its formation in the 1970s, it has a gaping hole in the form of support for childless workers. In 2009, workers with children were eligible for a tax credit of up to $5,657 (depending on the number of children). For workers without children, the maximum was $457.
The Obama campaign promised to expand and strengthen the EITC, but the administration hasn’t publicly pushed an expansion for childless workers — a particularly high-need population that is underserved by the federal social safety net. The administration should fulfill its promise to offer assistance to this segment of the population by expanding the EITC for childless workers.
The EITC is a wage subsidy that comes in the form of a refundable tax credit, which reduces, dollar for dollar, the amount of taxes you owe. For example, if you owe $1,000 of income tax and get a $600 credit, you will only owe $400. If the credit is worth more than a worker owes in taxes, he or she will receive the difference in the form of a check from the IRS.
The size of your credit is determined by your level of income; families with children are ineligible if they make more than $35,000 to $48,000, depending on the number of children. Decades of research have shown that the diminished tax liability and additional disposable income significantly increase a worker’s attachment to the labor force and standard of living. The effects are especially pronounced in young single mothers, a group with unacceptably high poverty rates. In other words, it is a very successful program.
While the EITC has been effective, the fact that childless workers are only marginally covered is a glaring deficiency. A worker without children who makes slightly more than $13,000 is ineligible. In fact, childless low–income workers are the only segment of the population that can actually be taxed into poverty: a full–time minimum–wage worker’s before tax income may be above the poverty line, while their after–tax income could be below it.
The tax burden faced by low-wage workers has been steadily increasing in recent years, with rising payroll, income, sales and excise taxes. For workers with children, these increases have been offset by the expansion of the EITC, while those without families are left to pay their full burden.
This is especially relevant given the fact — highlighted in a 2007 paper prepared for the Center on Poverty, Work and Opportunity at the University of North Carolina at Chapel Hill — that in recent years, the ranks of those at the bottom of the income ladder have swelled, particularly among young men, a trend exacerbated by the recession.
Our nation’s social safety net leaves a lot to be desired. It’s a hodgepodge of federal, state, local and hybrid programs that do a tremendous amount of good but are simply inadequate to the task at hand. The Recovery Act passed last year made great strides in filling some of the holes created by the recession, but there are still long–term issues that must be resolved.
While not a flawless program, the EITC has been an example of effective social policy. Then-Senator Barack Obama was right to suggest that it be expanded, and President Obama was right to strengthen the program through the Recovery Act. Now Congress and the Administration should take the next step and fill in the childless worker gap.
