A Tax Change Both Parties Can Support
Expanding the Earned Income Tax Credit has been touted by President Obama, Democratic Sen. Patty Murray, and Republican Rep. Paul Ryan.
With the midterms looming, few D.C. insiders expect Congress to accomplish much this fall. That's too bad, because a handful of influential politicians from very different ideological backgrounds agree on a simple policy solution that would boost the economic fortunes of millions of low-income working Americans: expanding the Earned Income Tax Credit.
This wonky-sounding proposal—which has been touted in the past year by none other than President Obama, Democratic Sen. Patty Murray, and Republican Rep. Paul Ryan—would bolster the tax credit for low-income workers in two key ways. First, it would make the tax refund for workers without children more generous, doubling the amount they could receive. (Currently, the tax credit mainly benefits working adults with children. Families can collect anywhere from roughly $3,300 to $6,140, depending on the number of children they have. Workers with no kids can receive only up to $496 a year.) Second, it would expand the credit's reach, so that childless workers between the ages of 21 and 24 who are not full-time students would be eligible to receive it. (Right now, if you are childless, you can claim the credit only if you're 25 or older.) Republican Sen. Marco Rubio, meanwhile, has proposed a very similar idea, calling his version a federal wage enhancement for workers with and without kids.
(Illustration by Sebastien Thibault)The Earned Income Tax Credit began decades ago as a Republican proposal. First enacted in 1975 under President Ford, it later saw major expansions under Presidents Reagan, Clinton, and George W. Bush. In 1986, at the signing of a historic overhaul of the tax code, Reagan called the legislation—which included an expansion of the EITC—"the best antipoverty bill, the best pro-family measure, and the best job-creation program to ever come out of Congress."
This basic idea appeals to the core values of both parties. For Democrats, it would increase the social safety net by funneling extra money to low-income workers through the tax code. And Republicans like the fact that the tax credit would go only to people who hold down jobs. "It encourages people to work by increasing the rewards," Ryan said in late July, when he trumpeted the idea in a speech at the American Enterprise Institute. "And we all know that the more people we have in the workforce, the more opportunity we'll have in this country."
Expanding the tax credit now would have substantial benefits. The Treasury Department estimates that the president's proposal—which is similar to Ryan's—would lift 500,000 people out of poverty and boost the incomes of another 10 million workers: a huge boon to those who have not seen their wages rise during the economic recovery. "Most jobs for low-skilled workers pay such a pittance that they need help," says Isabel Sawhill, a senior fellow at the Brookings Institution and a longtime budget and poverty expert. "If we want to encourage work, then supplementing wages is the way to go."
Of course, the big problem with this bipartisan lovefest is the question of how to pay for the expanded tax credit. In his most recent proposed budget, Obama did so by increasing taxes and closing loopholes. Ryan says he would find the cash by eliminating funding for other social-welfare programs that he calls ineffective.
Ultimately, the politics of a divided Congress make this proposal unlikely to pass in the coming months. Still, it's comforting to know that some Republicans and Democrats can at least agree on the broad outlines of expanding one simple tax credit. "It reveals what I think is an encouraging disposition on the part of conservatives to pay attention to the working poor and to help people out of poverty," says Peter Wehner, a senior fellow at the Ethics and Public Policy Center who served in the Reagan, George H.W. Bush, and George W. Bush administrations. "It's one of the few areas where there is a chance for common ground."