The Editors: Expand the Earned Income Tax Credit

Recent periods of divided government in the United States do not offer much hope for grand bargains or complex legislation that would tackle major problems in one swoop. But there are a few simple initiatives the new Democratic House and Republican Senate could pass and send to the president, notably an expansion of the Earned Income Tax Credit.

The E.I.T.C., which was created in 1975, is a tax refund or payment from the I.R.S. equal to a certain percentage of a household’s annual wages, with a cap determined by income level and number of children. In contrast to a universal basic income, another idea that has recently been taken more seriously, the E.I.T.C. is an incentive to find work, which
operates as why Republicans, including President Ronald Reagan, have supported its expansion in the past. Like Social Security, it is compatible with the idea that those who contribute to society are entitled to some
financial security.

It is a limited degree of financial security, to be sure. For the tax year 2017, the maximum credit allowed under the program was $6,318 (for a family with three children, earning no more than $18,340), and childless workers could receive no more than $510.

For the tax year 2017, the maximum credit allowed under the program was $6,318.

There are now several proposals to broaden eligibility for the credit so that more low-wage workers can benefit from it. And a recent study by the economists Jacob Bastian and Maggie Jones finds that the credit is almost entirely self-financing, thanks to the increased tax revenue from recipients entering the workforce and from their decreased use of other government assistance programs.

“Additional EITC expansions today—for adults with or without children—would likely continue to increase labor supply, decrease poverty, and improve the well-being of lower-income families at a cost much lower than the ‘sticker price,’” the authors conclude.

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The study has earned praise in publications across the ideological spectrum, from Mother Jones to National Review. Every member of the new Congress should read it and seriously consider what could be an easy—and politically popular—
bipartisan achievement.

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This article appears in December 24 2018.