9 February 2016

Notes from Norm: The Earned Income Tax Credit Is Good Government In Action

The Earned Income Tax Credit (EITC) is a tax code based income subsidy targeted to low-income working families.

Enacted in 1975, the EITC provides a credit that is received based upon a fixed percentage of family’s earnings.  As the family’s earnings increases, so does the credit at a rate determined by the number of children in the family.

A recent American Action Forum study and evaluation of the EITC, and in particular, a proposal by House Speaker Paul Ryan to expand the Earned Income Tax Credit (EITC) for childless adults, offers more justification about why we should continue to support and expand this extraordinary benefit that has helped lift millions of Americans out of poverty.

According to the American Action Forum, under Ryan’s proposal employment for childless adults would increase by 8.3 million, with 4.6 million being single and 3.7 million being married.

In its findings, the AAF outlined that “The EITC has historically been successful as tool for lifting low income families out of poverty. In 1997 and 1998, the EITC resulted in the removal of 4.3 million people from poverty according to the President’s Council of Economic Advisers.”

That alone is a profoundly positive example of how the U.S. tax code can actually be a force for good in this country in supporting families.

Another study cited by AAF shows that increasing the EITC maximum credit as well as the number of Americans receiving it have had a direct impact on increasing labor force participation.

Other key findings by the AAF about Speaker Ryan’s proposal are:

•    The proposal would provide an additional $1.3 billion to individuals in poverty;

•    $2.7 billion from the program would benefit 2.2 million individuals below 150 percent of the poverty line; and

•    The proposal budgetary costs are estimated at $13.8 billion, with $8.3 billion for new workers entering the labor force and $5.5 billion for workers currently in the labor force.

There’s a lot more detail and substance in the AAF report and analysis that is well worth reading by going to this link.

What is exciting about this report, and Speaker Ryan’s proposal, is that it underscores that there are government programs and policies that can actually have fundamentally transformative impacts on American families.

And, in doing so, can create a vast multiplier effect on our economy now and for future generations of Americans.

Using incentives to get people to get into the labor force through the tax code is a powerful inducement to support an expansion of the EITC.

So, too, is the fact that it has lifted millions of Americans out poverty.

The EITC has been such a positive program that it has been one of the rare initiatives that consistently receives broad bipartisan support.

And, both President Obama and Speaker Ryan have made strikingly similar proposals to expand the EITC, in a nod to changing family demographics since 1975, to childless adults.

As AAF reports, “Over the past few years, President Barack Obama and House Speaker Paul Ryan have made almost identical proposals for expanding the EITC for childless adults.”

Bipartisan support of the current law is proof that it works.

And with proposals to improve the program by Democrats and Republicans being so similar the AAF underscores that Ryan’s proposal  “..when compared to the current law, the proposal would give an additional $1.3 billion to individuals in poverty while lifting 89,800 out of poverty. The program would also target an additional 2.2 million individuals below 150 percent of the poverty line giving them $2.7 billion.”

I have long been a supporter of the Earned Income Tax Credit because of the powerful impact it makes on the lives of millions of Americans.

The best welfare reform, health care reform and economic reform in America is a job for Americans who can and want to work.

Spending public money on more and more programs that do nothing to create job opportunities or encourage those who can and are able to work to get a job has long been at the root of economic inequality not economic opportunity.

The Earned Income Tax Credit in its current form has been an astonishing force for economic good for millions of Americans.

The Earned Income Tax Credit and changes proposed by Speaker Paul Ryan would take a good program doing good things for America and make it great.