Improving the EITC for Childless Workers: A Real Opportunity for Bipartisan Progress


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While experts have noted the many, many problems with Congressman Paul Ryan’s new poverty plan, the same experts have said that it does include a good idea about expanding the Earned Income Tax Credit (EITC) for childless working people.

Ryan, who chairs the House Budget Committee and is expected to chair the Ways and Means Committee in the next Congress, offers a proposal that is nearly identical to one in President Obama’s most recent budget plan. Rep. Ryan and President Obama agree that the EITC for childless workers should be increased roughly from $500 to $1,000 in 2015. They also agree that the age limit for childless people to receive the EITC should be lowered from 25 to 21, so the credit no longer excludes young people struggling at the start of their working lives when they need to gain work experience.

Several studies have found that the EITC boosts work incentives for low-income people with children, but the EITC for childless people is so meager that it may have little impact. Another problem is that childless, poor adults are the only group of people who often owe federal income taxes even if they live below the poverty line.

Although Rep. Ryan and President Obama agree that the EITC should be increased for childless workers, there are some issues to work out. President Obama (reasonably, in our opinion) proposes to pay for the EITC expansion by closing the “John Edwards/Newt Gingrich Loophole” for Subchapter S corporations and also close the “carried interest” loophole that allows buyout-fund managers like Mitt Romney to pay a lower effective tax rate than many middle-income people. (These proposals are all explained in a CTJ report.) Ryan, on the other hand, proposes to offset the costs by cutting spending.

Nonetheless, the fact that the President and a leading congressional Republican agree on how to change part of the tax code seems nearly miraculous in the current environment.

The Details

The EITC is a tax credit equal to a certain percentage of earnings up to a maximum amount and is phased out for people with incomes above a specific threshold.

Under current law, for childless people working in 2015, the credit will be just 7.65 percent of the first $6,570 in earnings, which equals a maximum credit of just $503 in 2015. The credit will be reduced by 7.65 percent of each dollar of income above $8,220 (there’s a higher threshold for married people). When you work out the math, this means that a single childless person receives no credit at all if income exceeds $14,790.

Ryan and Obama both propose to double the credit rate to 15.3 percent, which would double the maximum credit to about $1,005. They would also increase the income threshold at which the credit begins to phase out from $8,220 to 11,500. This means the credit will not be fully phased out for a single person until his or her income exceeds $18,070.

There is one improvement that appears in Obama’s proposal but not in Ryan’s. Obama would also raise the maximum age of eligibility from 64 to 66 to address the fact that people no longer can receive full Social Security retirement benefits at age 65, as was the case when the existing EITC rules were first enacted.

But overall Obama and Ryan are quite in agreement on what changes are needed. Of course, even under the expansion they propose, childless people would only receive the EITC when their incomes are quite low. But this would nonetheless make the EITC more effective in serving a group that it currently leaves behind.

Thank you for visiting Tax Justice Blog. CTJ and ITEP staff will soon retire this domain. But ITEP staff are still blogging! You can find the same level of insight and analysis and select Tax Justice Blog archives at our new blog, http://www.justtaxesblog.org/

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