Republicans 'Support' Expanding the EITC—Just Not If It Costs Money

Obama wants childless workers to receive the Earned Income Tax Credit. Republicans say they do too. So why won't it happen? Blame the tyranny of deficit hawks.
Reuters

Budgets are more than just numbers. They're statements. They tell us how much politicians prioritize, say, tax cuts for the rich versus tax expenditures for the poor. And President Obama's 2015 budget, like his previous few, tells us that he's looking for ways to fight inequality in an age of austerity.

Obama's budget has three big, or at least bigger, ideas—and pay-fors. First, it calls for closing tax loopholes for the rich and cutting Medicare drug and provider payments all to replace the sequester's deliberately stupid cuts. Second, for increasing the cigarette tax to finance universal pre-K. And third, for closing the carried interest and "Gingrich" loopholes to fund bigger wage subsidies for non-parents. It isn't exactly a new New Deal, but it is a decent agenda for helping the recovery, young parents, and young workers—without increasing the deficit, either.

Of course, it has no chance of happening. Republicans already rejected the first two when Obama proposed them in last year's budget. And they're all but certain to reject an increased Earned Income Tax Credit (EITC), too. This last bit is particularly depressing. That's because the EITC is one of the few things that Republicans and Democrats actually agree on. They both think it's one of our most successful antipoverty programs, and they both want to expand it.

Now, there are two ways the government can boost low incomes: increasing the minimum wage or increasing wage subsidies. Democrats have focused on the first, in part, because the government doesn't have to spend any money on it. Businesses pick up the costs instead. But this implicit tax on hiring hurts it, if only slightly. The Congressional Budget Office estimates that raising the minimum wage to $10.10 would cost 500,000 jobs, though it would lift 900,000 people out of poverty by shifting $19 billion from high to low-and-medium income families. Unfortunately for Democrats, their Republican counterparts are not on board for the wage increase.

That said, both parties agree that the EITC helps poor families. It gives low-income people a refundable tax credit for working—subsidizing their wages and giving them a reason to keep working. Even better, it doesn't cost jobs, and can target the people—say, poor parents—who need help the most. There are only two problems: it costs the government real money, and, right now, it doesn't really help childless workers. You can see just how little it helps people who don't have kids in the chart below from Council of Economic Advisers chief Jason Furman. It shows how much tax policies, including the EITC and Child Tax Credit, have added or subtracted to poverty for parents and non-parents alike.

The good news is both parties want to fix this. As you can see below, Obama's budget calls for 1) doubling the maximum credit that childless workers can claim from $503 to $1,006, 2) starting and ending the phase out at higher incomes, so more workers get more money, and 3) reducing the age when workers can claim it from 24 to 21, assuming they live on their own.

It's a plan conservatives can love. Former Bush advisers Greg Mankiw and Glenn Hubbard have both endorsed something like it. Reihan Salam and Ross Douthat wrote a whole book about it, and like the idea now. And Senator Marco Rubio proposed something similar—though that's where the catch comes in. Rubio wants to turn the EITC into a general wage subsidy that will help childless workers more. But he doesn't want to spend any more money on it. So, under his plan, increasing wage subsidies for workers without kids would mean decreasing it for workers with kids. That's not a worthwhile trade.

Budgets are about priorities, and Republicans don't prioritize an expanded EITC. They like it, especially compared to a minimum wage increase, but not enough to actually pay—or borrow—for it. Their austerian impulses, long after it's clear that the debt crisis they keep warning about isn't coming, are keeping them from supporting a smart policy—one they historically have liked.

It's enough to make a pessimist despair, seeing bad ideas kill good ones.

Presented by

Matthew O'Brien

Matthew O'Brien is a former senior associate editor at The Atlantic.

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