The federal Earned Income Tax Credit (EITC) for low-income working families helps to promote work and offset the tax burden households face. But the federal aid program has some glaring problems, according to a recent report from the Center on Budget and Policy Priorities.
The tax credit reaches few low-income childless workers, and those who are eligible see little relief from the hefty federal tax load they are forced to shoulder.
“This is the group we’re taxing deeper into poverty,” said Dan Lesser, director of economic justice at the Sargent Shriver National Center on Poverty Law.
There are two pieces of legislation pending in Congress focused on combating this issue by expanding EITC to more childless workers and boosting the maximum credit from $487 to $1,350.
Samantha Tuttle, director of policy and advocacy at the Heartland Alliance, said increasing the maximum credit would make a “huge difference” in the lives of low-wage, childless workers.
“That’s a huge percentage of income for people experiencing poverty,” she said.
Strengthening the credit as part of the proposed legislation has the potential to bring some 300,000 childless workers out of poverty, while another 3.8 million people would be elevated closer to the poverty line, the Center on Budget and Policy Priorities estimates.
As it stands, workers younger than 25 who are not raising children are unable to receive EITC. Additionally, the average credit for eligible childless workers ages 25 to 64 is $270, compared to $2,790 for those who are raising children, the report noted.
Those childless workers who do qualify start to see their credit phased out when their incomes surpass $7,970, or about half of what a full-time, minimum wage worker makes, the report showed.
As such, adults without children who are making minimum wage and working full-time do not see the credit, yet these workers carry a federal payroll and income tax burden of $2,669.
Moreover, childless adults with earnings at the official poverty line, or $11,905, see an average credit of $186, which makes just a tiny dent in their $1,826 federal tax load.
In Illinois, about 500,000 adults experiencing poverty are from single households or live with roommates who are not related to them. Although this figure is not a perfect match with the number of childless adults in Illinois living in poverty, it’s a pretty good estimation of who would benefit locally if the EITC were strengthened, Tuttle said.
Additionally, there are about 100,000 people in the state who work full-time and year round at the minimum wage, yet they still live in poverty, Tuttle said.
“We have a crisis in Illinois,” she stressed. “So certainly, in this state, those sort of initiatives really make a difference.”
One of the bills in Congress is the Working Families Tax Relief Act, S. 836, which U.S. Sen. Sherrod Brown (D-OH) introduced in the Senate back in April.
The other proposal, hailing from the House, is the Earned Income Tax Credit Improvement and Simplification Act, H.R. 2116, which U.S. Rep. Richard Neal (D, MA-1) introduced back in May.
U.S. Reps. Danny Davis (D, IL-7) and Bobby Rush (D, IL-1) are the only Illinois congressmen who have singed on to the measure in the House so far. U.S. Sen. Dick Durbin (D-IL) is a co-sponsor of the Senate bill.
The measures include a speedier EITC phase-in rate so low-income, childless workers’ payroll taxes are fully counterbalanced. The income level at which the credit becomes completely phased in would also be bumped up from $6,370 to $8,820. Additionally, the credit would be phased out at higher income levels, and would not roll back completely until earnings reach $19,245, up from the current $14,340.
The two bills would also bring down the eligibility age from 25 to 21.
One argument for reducing the eligibility age is that it will encourage more labor force participation, particularly for low-income young men. In 2012, men aged 20 to 25 had a labor force participation rate that was 14.2 percentage points lower than men in the 25 to 54 age range, which is a record-setting gap, the report reads.
Bolstering incomes for low-wage workers and expanding EITC could have numerous other societal impacts, including helping to reduce the crime and incarceration rates that are higher among younger people with less education. The move could also lift up low marriage rates among childless workers. This would be important, as households with two partners have lower poverty rates than single households because incomes and other resources can be combined.
But ultimately, implementing these changes would help increase employment, which would certainly be good for Illinois given the state’s high unemployment rate at 9.2 percent, Lesser pointed out.
“This really addresses some of these long-term issues we’ve had with very low living standards for our childless adults and particularly those with less education and those who are younger,” Lesser said.
Expanding the credit could encourage more younger people to work, but on the other hand, the unemployment rate is especially high for people aged 18 to 25, said Brad Cripe, assistant professor of accounting at Northern Illinois University’s College of Business.
“They’re already having a hard time finding a job,” Cripe said. “So if you give more incentive for that, is that going to work if they can’t find a job anyway?”
Tuttle stressed that the government should not wait around for the economy to pick up to address this issue because “people’s lives are happening right now.”
“They’re creating the paths that may lead them to a better life, and [they] should be supported,” she said.
Where the revenue would come from for the maximum credit increase remains a big question mark, Cripe added.
“If we can afford it as a country and we view this as a priority, then I think it’s an important thing to do. But I wonder, where’s the money going to come from,” he asked. “If you expand opportunities in the tax code, you have to take them away from somebody else.”
Expanding EITC could influence more people to work legally rather than off the books, which would increase tax revenue and possibly offset the costs of the proposed initiatives, Lesser said.
Also, “just about anybody” is in a better position than low-wage, childless workers to afford paying a higher level of taxes, he noted.
“If there’s a group we want to help through restructuring the tax code, this would be really at the top of the list,” Lesser added.