How to Expand the EITC for Single Workers – Affordably

Limit a deduction that benefits mostly the rich and pay a bonus to low-income workers.

Since 1975, the Earned Income Tax Credit (EITC) has been one of the federal government’s most effective anti-poverty tools. A “work bonus” for low-income wage earners, the credit brought more than six million Americans out of poverty in 2013, including more than three million children, according to the Center on Budget and Policy Priorities.

First signed into law under President Gerald Ford, the EITC has since been expanded by both Republican and Democratic presidents, and enjoys strong bipartisan support. The more an eligible person works, the larger his or her credit: this year a parent with two children, can receive up to $5,572 through the EITC.

But while the EITC provides a welcome boost for single parents, it does much less for workers without children. In 2016, a single filer without dependents won’t get more than $506 from the EITC – and if the worker’s income is above $14,880, the credit won’t be available at all.

Why is the EITC structured this way? After entering the White House promising to “end welfare as we know it,” President Bill Clinton included a large expansion of the EITC in his first budget, part of an effort to shift welfare recipients into the workforce by making work pay. But the emphasis of welfare reform in the 1990s was on single mothers – among whom poverty rates fell in the late 1990s – and not much attention was paid to low-income men.

Indeed, the Washington Center for Equitable Growth estimates that, while the expanded EITC incentivized millions of single parents to work, they “may have had much smaller negative effects on the employment of secondary earners in married couples” (emphasis added).

Today, however, there’s renewed focus on strengthening families, including by supporting the incomes and earnings of men. As the Center on Budget and Policy Priorities (CBPP) notes, “two-parent households have lower poverty rates than single-parent households, in part because they can pool their incomes and resources.” CBPP also points out that children who live with two parents ‘tend to fare better than other children on educational, social, and health outcomes.'”

On both sides of the ideological spectrum, policymakers and experts agree that boosting the prospects of low-income men can put them in a better position to be involved in the lives of their children, both emotionally and economically, and potentially promote the formation of two-parent households. Both President Obama and House Speaker Paul Ryan, for example, have proposed making the EITC for second and childless earners more generous.

Despite this agreement, however, the potential costs of expanding the EITC remains a potentially major hurdle.

Angela Rachidi of the American Enterprise Institute, for instance, looked at three ways to increase the EITC for childless and secondary earners. The most generous option in her report, which would increase the maximum credit to $1,500 and allow workers to continue their eligibility for the credit at a higher level of income, would cost up to $22 billion per year.

One potential way to pay for this expansion would be to partially eliminate what is now a costly tax break that largely benefits wealthy households: the deduction for state property taxes.

Currently, taxpayers who itemize their deductions can deduct their state and local taxes from their federal income tax. According to the Committee for a Responsible Federal Budget, from 2014 to 2023, the deduction will cost the Treasury $950 billion – with 80% of the benefits going to the top 20% of earners.

One argument for keeping this deduction is that it helps states with high income inequality fund generous social programs for low-income families. When wealthy residents can offset their state taxes with a federal deduction, it becomes easier for them to pay the higher state taxes needed for more generous safety nets. Indeed, for this reason the conservative Heritage Foundation has called for the deduction to be eliminated.

Fortunately, there is a way to curb the deduction without curbing the generosity of state governments: allow filers to deduct state income and sales taxes, but not property taxes.

According to the Committee for a Responsible Federal Budget, ending the property tax deduction would save $350 billion over ten years. This would be more than enough to fund a generous expansion of the EITC for the workers who have so far not benefited very much from it. As a starting point for conversations on how to expand the credit, this partial repeal of the deduction makes a lot of sense.

While the earned income tax credit has clearly benefited millions of Americans, there are ways to extend its reach even further. Boosting the incomes of more couples with children, while making work pay for more low-income Americans, is a goal worth pursuing.

Michael Purzycki

Michael Purzycki is a public policy researcher and writer based in Somerset, New Jersey.