The Earned Income Tax Credit: An Effective Anti-Poverty Tool with Room to Grow

The Earned Income Tax Credit (EITC) – one of the most effective anti-poverty tools in the nation – was described as a model policy intervention but also one that still has substantial room for improvement during a Capitol Hill policy briefing on Sept. 25.

The briefing, hosted by Tax Credits for Workers and Their Families, explored ways to expand the federal EITC. Each year, the EITC reaches about 27 million workers and their families with an average credit of about $2,500.

Moderator Indivar Dutta-Gupta, co-executive director of the Georgetown Center on Poverty and Inequality, began by emphasizing the effectiveness of the EITC. The credit, he said, is generally responsive to changes in demographic and economic need, which is not always true of other programs like Temporary Assistance for Needy Families. Other countries, including the United Kingdom and Canada, have modeled similar tax credits on the EITC.

“The EITC is the core part of a broader strategy for addressing economic inequality and poverty,” Dutta-Gupta said. “It shrinks poverty, increases employment and earnings, rewards work, likely improves health and increases educational achievement and outcomes.”

But, he argued, the EITC is unusually complicated, excludes many groups and should be expanded to fulfill its potential. Panelists discussed ways to improve the EITC, including expanding the age limits for workers without dependent children, increasing the size of the credit and raising the income threshold.

Cynthia Miller, a senior fellow at MDRC, said that the first step is to increase the generosity of the EITC. At the briefing, she unveiled the results of Paycheck Plus, a randomized controlled trial test of a more generous EITC for workers without dependent children in New York City and Atlanta.

The results of the three-year Paycheck Plus program demonstrate the promise of the expansions proposed by panelists: effects included a reduction in severe poverty, an increase in child support payments among noncustodial parents and an increase in participants’ employment rates, particularly for women and more disadvantaged men.

Without dependent children, workers under 25 and over 65 years old cannot claim the EITC. The size of the credit also significantly increases with each child. Panelists were largely in agreement on the benefits of expanding the age limits for childless workers.

Elaine Maag, a senior research associate at the Urban Institute/Tax Policy Center, argued that almost all of the benefits of the EITC go to families with at least one child. “You get larger credits as you have larger families, and you get almost no credit if you have no children,” she explained. Maag said that out of a number of experiments on expanding the EITC, changing the age eligibility for childless workers proved to be one of the most inexpensive options.

Some states, such as Maryland, have already taken that step. Maryland tax preparation clinics noticed that though the number of tax returns was increasing, the EITC amount filers received was decreasing, according to Robin McKinney, co-founder and CEO of the CASH Campaign of Maryland. They realized this was driven by changing demographics in the tax preparation clinics: an increase in the number of filers without dependent children meant that fewer were eligible for the EITC. This is partly what led the CASH Campaign of Maryland and other advocates to prioritize age expansion, and Maryland eliminated the minimum age requirement completely in 2018.

“We were asked pretty early on which slice of the pie we wanted first, and we always said age because we feel like that’s just righting a wrong,” McKinney said. “The whole reason that it was set at 25 was what I would describe as a middle-class understanding that people are being supported through college and after by their parents, and that’s just not reality for many Americans.”

Jill Hunter-Williams, deputy chief of staff for Congressman Danny K. Davis (D-IL), highlighted another population often excluded from the EITC: noncustodial fathers. “Mr. Davis’s point is that you’re going to be present for your kids, a key part of that is being able to contribute financially to them,” Hunter-Williams said, “but many low-income non-custodial parents can barely support themselves.”

An EITC expansion is a key piece of the Fatherhood and Healthy Families Act, co-sponsored by Rep. Davis. Making noncustodial fathers eligible for the EITC or increasing the amount of their credit, Hunter-Williams argued, encourages them to financially support their children.

Despite the EITC’s broad bipartisan support, effectiveness in fighting poverty and potential for expansion, panelists reminded attendees of the credit’s limitations: “It doesn’t work if you don’t work though,” Miller said, “so it’s only one part of a well-functioning safety net.”