In the U.S. Senate and the U.S. House, lawmakers are considering bills that could help lift hundreds of thousands Americans out of poverty. The two bills, both designed to expand eligibility for the Earned Income Tax Credit, have the potential to bring relief to over 300,000 Americans, according to a study by the Center on Budget and Policy Priorities.
“Providing a more adequate EITC to low-income childless workers and lowering the eligibility age would have several important benefits beyond raising these workers’ incomes and helping offset their federal taxes,” the study states. “Some leading experts believe that an expanded credit would help address some of the challenges that less-educated young people (particularly young African American men) face, including low and falling labor-force participation rates, low marriage rates, and high incarceration rates.”
The EITC is a tax credit offered to low-income taxpayers. Designed as an income supplement, the program has added $1.50 to the economy in the form of additional earnings for every $1 invested and has been responsible for lifting 3.1 million children above the federal poverty line, according to a Brookings Institution report.
The bills under debate in Congress would lower the age of eligibility from 25 to 21 for childless adults.
Unfortunately, EITC, which was first introduced in 1975, has traditionally been seen as a supplement meant to support families, not individuals. The current legislation caps the maximum credit an individual without children can claim at $487 per year, with a phase-in when income reaches $7,970 and a phase-out when income reaches $14,340. What this means is that, for a childless individual over the age of 25, you must have a taxable income between $7,970 and $14,340 in order to get — at most — $487 in earned income credit.
In contrast, a parent aged 21 or older has an income eligibility window between $17,530 and $37,870, with a maximum credit of $3,250, assuming they have one child. For two children, the phase-out amount raises to $43,038 with a maximum credit of $5,372. With three children, the phase-out increases again to $46,227 with a maximum credit of $6,044.
The Senate’s bill — the Working Families Tax Relief Act of 2013, sponsored by Sen. Sherrod Brown (D-Ohio) — would make permanent a temporary increase in the maximum EITC rate that was implemented under President Obama’s economic stimulus plan, increase the rate for adults with no children, lower the eligibility age to 21, and change eligibility rules for families in non-traditional living situations. The bill would also change the minimum income for the child tax credit from $10,000 to $3,000, eliminate the inflation adjustment to the minimum income level, allow inflation to be factored in the maximum credit amount, and prevent investment income from making individuals ineligible.
The House’s bill — the Earned Income Tax Credit Improvement and Simplification Act of 2013, introduced by Rep. Richard Neal (D-Mass.) — would also make permanent the president’s stimulus increase to the EITC, lower the minimum qualifying age for adults without children to 21, and allow the credit to be claimed for children without valid Social Security numbers — allowing, for the first time ever, undocumented immigrants to claim the credit. Like the Senate bill, it would also allow nonparental custodians to claim the children they are caring for, allow married adults who are living apart to claim the credit, and remove checks of investment income.
The House bill is likely to die in committee, while the Senate bill may clear the floor — only to die upon arrival in the House. Traditionally, Republicans oppose EITC because, in many cases, the credit creates a phenomenon known as negative income tax. Many of the individuals who would claim this credit would also be exempt from income tax, creating a situation where the government is paying the taxpayer more than what the taxpayer paid into the tax rolls in the first place. Many conservatives see this as a “backdoor welfare program.”
However, in lieu of an increase to the minimum wage, an expansion of the EITC may be the best avenue available to reverse the increasing rate of poverty. According to the CBPP, the median real income for a male high-school dropout with a full-time job dropped by 10 percent between 1991 and 2011. The EITC is an incentive-based credit, which means it has a slow phase-in, reaches maximum credit near the middle of its eligibility range, and has a slow phase-out.
This means there is a real incentive to earn more, and there is no tangible benefit to earning less to maximize the credit. For every additional $50 earned, the credit changes by $5 to $25 positively or negatively. This means that as the worker earns more in wages, there will never be a point where he would take home less than if he had opted to work less and maximized the EITC. He would ultimately keep more of his earnings — since the credit will effectively reduce his tax liability — until the worker phases out of the program.
This would also bring more people back into the workforce. The CBPP has determined that less than 58 percent of all male high-school dropouts are working or seeking work. This is compared to 80.5 percent of all males who are older than 25 and have a college education. Many experts have argued that by increasing the income of the lowest socioeconomic group, the benefits would extend into the social sphere, as more people would have the social stability to start and raise families and would not have the motivation to commit crimes to survive.
According to Ron Haskins, co-director of the Brookings Institution’s Center on Children and Families, an expanded EITC for childless workers would increase the incentives to work and contribute to society.
“Many of the nation’s most serious social problems are caused by poor young males. They are the demographic group most likely to drop out of school, commit crimes, perpetrate violence on others, including their girlfriends, and desert their children,” Haskins said. “[These] problems are especially serious among young black males, and that the causes for blacks form a tangled web that includes lingering effects of generations of slavery and racial oppression, high levels of school dropout, current discrimination in the job market, astounding rates of arrest and imprisonment, and, ironically, being reared in fatherless families.”
“The strands in this complex web of causality can be thought of in two categories: the ones over which young men have control and the ones over which they don’t. If young men could be helped to overcome their inherent disadvantages, and follow a few simple rules of behavior, they could greatly improve their own well-being and that of the women and children who are closest to them. Here are the rules: Graduate from high school, don’t commit a crime, get a job and work hard, get married, and have children,” Haskins continued.
A recent study from the Restaurant Opportunities Centers United, in contrast, revealed that almost 58 percent of all Americans living under the federal poverty limit — or about 6 million Americans — would be pulled out of poverty if the minimum wage was increased to $10 per hour. The current national minimum wage, at $7.25 per hour, is $2 less in real terms than the minimum wage in 1968.
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