A Tax Proposal That Could Lift Millions Out of Poverty

The Earned Income Tax Credit is one of the country’s most effective anti-poverty policies, but it mostly leaves out a huge segment of workers: those without children.

Brendan McDermid / Reuters

As the Trump Administration and Congressional Republicans attempt to portray a tax plan slanted to the top 1 percent as “middle-class” tax relief, it’s worth asking what actual tax relief for American workers would look like. Among the ideas that should be at the top of the list should be expanding the Earned Income Tax Credit (EITC), a policy that provides millions of low-income American workers with up to a few thousand dollars when they file their taxes.

Just over 24 years ago, I was proud to be part of President Clinton’s effort to expand the EITC for families with two or more children. This expansion was a step toward fulfilling his campaign pledge that parents who worked full time should not have to raise their children in poverty. But the 1993 EITC expansion went beyond working parents, including smaller, but important, innovation: For the first time, the tax break would reach so-called “childless workers.”

Since then, improvements to the EITC have made it one of the country’s most successful anti-poverty efforts. In 1997, Clinton designed the new Child Tax Credit (CTC) to further bolster EITC payments, and, later, President Obama further expanded the tax credits, first on a temporary basis and eventually permanently. Due to these expansions, about 10 million people are lifted out of poverty each year by the combination of these two tax credits. A working parent with two children earning $18,000 who might have received less than $1,000 in 1992 now can be eligible for as much as $7,500.

Yet, for all that progress, the size of the tax credit for workers without children has barely changed. Its value has only increased to match inflation, making the maximum credit just over $500 now and the average EITC only $293 for this group. Only the lowest-income workers in this group are eligible. A full-time, year-round single worker who earns the federal minimum wage receives an EITC of only $37 to supplement her $14,500 in earnings, for example.

While the new Republican tax reform framework ignores the EITC entirely, a few notable Republicans, including Paul Ryan,  have joined Democrats in arguing that an expansion of the childless EITC is important to incentivizing younger men—many of whom are completely excluded from the EITC under its current structure—to participate in the formal economy, which could help contribute to other potential benefits like increased child-support payments, higher marriage rates, and lower rates of incarceration. Yet, Ryan and other Republicans often insist that any expansion must be funded by cuts to benefits for other low-income Americans, and the most prominent proposal from Republicans and Democrats alike—to roughly double the credit for this group to about $1,000—is far too little to make up for 24 years of stagnation.

There are four major reasons, beyond inducing young, poor men to the workplace, to expand the credit to reach more childless workers—what I call an EITC for All—and to make it much more generous as well.

First, an expansion of the EITC for childless workers would benefit a wide cross-section of Americans—beyond young men. An EITC for All could be a major boost to millions of single women without children as well as workers with disabilities.  And though often overlooked, an EITC for All could be a significant economic buffer for older working parents facing economic pressure. The explanation is that “childless” in this context doesn’t mean literally childless but people who do not claim any dependent children on their tax forms. A 55-year-old father with all adult children who had worked in factories until recently taking a lower-paying job would benefit from an EITC for All proposal until he qualifies for Social Security and Medicare. In fact, more than one-third of the beneficiaries of an expanded EITC for childless workers would be people 45 years old or over.

Second, while, for the most part, the tax code lifts people out of poverty via various credits, there is one group and one group only for whom this is not the case, and that is workers without young, dependent children, the Center on Budget and Policy Priorities has found. More than 7 million childless adults are currently taxed into poverty by the federal tax system, primarily because of the inadequacy of the EITC for this group. A major expansion could single-handedly end anyone being taxed into poverty in the United States.

Third, an EITC for All increase together with raising the minimum wage to $15 an hour could be a powerful one-two punch in moving more workers and working families toward a true living wage. And while minimum-wage advocates often have to combat opponents who claim—largely incorrectly I believe—that minimum-wage increases will discourage hiring or encourage automation, those arguments cannot even be raised against an EITC increase, as the EITC does not impose any new costs on employers.

Fourth, while an EITC for All would not clearly go to all workers each year, it would have a far more universal reach over the course of the life-cycle of most workers. Research has found that as many as 50 percent of American taxpayers with children benefit from the EITC at some point over an 18-year period. Expanding the so-called childless worker provision would increase the share of Americans who would at key points in their life benefit from the EITC: For example, when they start out, when they face unemployment for part of the year, or if they for some reason must take a lower paying job in the later years of their work life. And while an expansion in the “childless” credit may not seem to help a lower-income single parent with children today, it could provide important economic help for that parent when her children are no longer dependent and she would otherwise lose all assistance from the CTC and EITC.

Under an EITC for All proposal, the credit for childless workers should be expanded so that it provides a 30 percent boost for the first $10,000 of income.  The phase-out range for the benefit could be extended to ensure that workers were receiving $2,000 more up to $30,000 and relief of as much as $1,000 in the $40,000-$50,000 range and the minimum age of eligible workers would be lowered from today’s 25 to 21. While an EITC for All proposal of this magnitude would mean devoting resources for childless workers and families outside of the normal EITC income range, it would make the EITC an even more powerful and politically-secure tool for rewarding work and economic security by ensuring that it also helped not only the most low-income workers, but also many others facing the economic pressures of wage stagnation, downward mobility, and the disruptions of trade, globalization, and automation.

An EITC for All proposal could stand on its own or be part of a broader expansion of the EITC, as Representative Ro Khanna and Senator Sherrod Brown admirably proposed with the GAIN Act. Their plan would increase the maximum EITC for childless workers to $3,000, while roughly doubling the EITC for all workers with children, although the childless EITC would be fully phased out $37,000. The GAIN Act would dramatically boost incomes for millions of Americans at a total cost of $1.4 trillion over ten years. If that price tag proves to be a bridge too far—especially considering the competing priorities of healthcare, childcare, and infrastructure spending—this EITC for All proposal would come in at less than half that.

New research confirms that a bigger EITC for childless workers would have the same major boost for employment benefits that have resulted from the EITC increases for workers with dependent children.

Just last month MDRC, a nonpartisan social-policy research group, released interim findings on a major pilot, Paycheck Plus, that provided an up-to-$2,000 bonus to childless workers at tax time.  The study, which was designed by top economists including Harvard’s Lawrence Katz, included a randomized control trial involving more than 6,000 low-income, single adults without dependent children in New York City, half of whom received the bonus. It found that bonus boosted income (including the bonus) and rates of employment. The researchers linked the pilot to other positive results, such as increased tax filing and increased child-support payments.

With an all-Republican federal government focused on expensive high-income and corporate tax cuts, the place to start over the next three years may be at the state level. States like California have shown they can lead in increasing the family EITC levels, and could also step up to create state EITCs for All. If the federal estate tax is deeply cut or eliminated, as Republicans continue to push for, California and other states could consider higher state estate taxes as one potential way to help cover the costs of an EITC for All expansion.

This is not to suggest an EITC for All is the only compelling progressive tax priority. Funds for increasing the EITC for All to higher incomes would have to be balanced against the compelling need for more support through child allowances or increased refundable tax credits for the youngest of children in the poorest of families.  But an EITC for All would efficiently and substantially provide millions of Americans with greater economic security and dignity. There’s no reason that should be limited to only those who list dependent children on their tax forms.