A Proposal to Expand EITC: Make Work Pay

One of the best ways to fight poverty is to help working Americans trying to get by on low incomes. Low wage workers are fighting to keep themselves and their families out of poverty and its time we had smarter policies to really make work pay.

I۪m happy there is a growing discussion about how to expand the Earned Income Tax Credit (EITC). My revenue neutral tax reform plan, the Tax Reduction and Reform Act of 2007 released this October, should be the basis of a key expansion of EITC, one that would finally help workers without qualified children and live up to the American ideal of rewarding hard work.  It۪s important to keep in mind that while some of these workers don۪t have children, some are noncustodial parents working hard to support their children.

Currently, these workers don۪t get much help from the EITC. The maximum EITC for a worker without qualified children will be $438 and begin to phase out at an income level of just $7,160 in 2008. Because of the disproportionate payroll tax burden on such a worker, we are actually taxing poor workers without children deeper into poverty and the current EITC offers them only modest assistance. In 2006, such a worker would have earned $10,488, paid $802 towards the employee share of payroll taxes, and then received an EITC of just $125.

If we want to incentivize people to work and keep them out of poverty, there has to be a better way. And there is. The EITC is not a Democratic or a Republican idea President Ford signed it into law, President Clinton expanded it. President Reagan called it the “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” Mayors Bloomberg and Villaraigosa have called for expanding it further. Some Republicans on this site have called for proposals to make it work better.

My bill would fully offset the payroll tax burden on workers childless workers and noncustodial parents. A Tax Policy Center analysis estimates that this proposal would benefit more than 6.3 to 7.2 million workers, including by brining in 2.1 to 3 million new EITC participants.   President Bush often talks about the benefits of tax cutting.  My bill would essentially eliminate direct Federal taxes on poor married workers without children.

Ending a Tax on Working Families
Share of Wages Paid in Federal Taxes for Married Couples Without Children for One FTYR Minimum Wage Worker, * TY 20006.

*Chartis for earnings in calendar year 2006.  “Proposal” deflates CalendarYear 2008 EITC proposal, using CBO CPI-rs projections and series. Includes only the employee share of the payroll tax.  Assumes workerearns $5.15 an hour, 40 hours a week, 52 weeks a year.  Prepared by theStaff of the Committee on Ways and Means, 30 November 2007.

My proposal also reduces the tax burden on unmarried full-time year-round minimum wage workers from nearly 9% to around 3%.

Slashing Taxes on the Working Poor
Share of Wages Paid in Federal Taxes for Single Full-Time Minimum Wage Worker
Without Qualified Children,* 2006
*Chartis for earnings in calendar year 2006.  “Proposal” deflates CalendarYear 2008 EITC proposal, using CBO CPI-rs projections and series. Includes only the employee share of the payroll tax.  Assumes workerearns $5.15 an hour, 40 hours a week, 52 weeks a year.  Prepared by theStaff of the Committee on Ways and Means, 30 November 2007.

That۪s real tax relief for the people who need it the most, and we can accomplish it at the cost of less than 2 weeks in Iraq.

It۪s important to remember the result will benefit every American. Obviously, those who directly receive the aid will be able to avoid falling below the poverty line. But it will also help children, by helping non-custodial parents live up to their responsibilities. And it will help us all by improving the incentive to work and encouraging more people to work. Many men without a great deal of education are struggling to make it in the new, growing global economy. We should reward work and expand incentives as much as possible to make sure we all benefit from our evolving economy.

In the coming months I hope we hear a number of new ideas for fighting poverty. But one of the most obvious should be expanding the EITC to help make work pay.