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House Ways & Means Committee Chair Kevin Brady (R-TX) and other top House Republicans are exploring some ideas for a proposed tax reform 2.0, building on the Tax Cuts and Jobs Act, which was enacted last year. And while they have yet to settle on the details, their framework does not include an expansion of the earned income tax credit (EITC) for workers without children at home. That’s a missed opportunity. I’ve recently finished a new analysis that shows that even a modest increase in the credit for these workers could substantially help reduce poverty.
The idea of increasing the EITC for workers without children at home was raised by Paul Ryan (R-WI) and former President Obama in years past. But the final Tax Cuts and Jobs Act (TCJA) excluded such a measure. In the end, the TCJA provided substantial benefits to high-income people but lower benefits to those with low- and middle-incomes.
Now that House policymakers say they once again want to revisit the tax code, they should shift their focus to those largely left out of last year’s cut and consider expanding the EITC for workers without children at home – often called “childless workers” for tax purposes. (In some cases, these individuals are parents, but their children are either living with another parent or independently.)
The existing childless EITC has at least four shortcomings, relative to the EITC for workers with children:
- The credit phases in at a rate of 7.65 percent – much less than the 40 percent phase-in rate for workers with two children;
- The maximum credit in 2018 is $519. In contrast, workers with two children can get a maximum credit of $5,716—more than 10 times as much;
- The credit starts to phase out for single workers with no children at home once they make $8,490 (and is fully phased out once they make $15,270). Single workers with two children start seeing their credit phase out once earnings reach $18,660 and continue to receive some amount of the credit as long as their income is below $45,802. Married couples start seeing their credit phase out once they make $24,350 and remain eligible for at least some EITC until their incomes reach $51,492; and
- Recipients without children must be at least 25 years old – there are no age restrictions for parents.
I analyzed an alternative that would make four major changes in the EITC for workers with no children at home. It would:
- Double the phase-in rate to 15.3 percent;
- Double the maximum credit to $1,038 in 2018;
- Begin phasing out the credit at the same income as workers with one child; and
- Allow workers as young as 21 to receive the credit.
The proposal would deliver an average benefit of $600 to workers with no children who benefit from the larger credit and lift about 700,000 adults out of poverty at a 10-year budget cost of about $95 billion. Benefits would be roughly split between people in the lowest two income quintiles.
In July, the Council of Economic Advisors (CEA) boldly pronounced that the war on poverty was “largely over”, a dubious claim explored by my colleague, Greg Acs, here. There’s still work to be done to address poverty in America – and expanding the childless EITC would be a great way to start that work.
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