Human Capital and Support for Low-Income Workers

Alan Berube
Alan Berube Interim Vice President and Director - Brookings Metro

February 27, 2009

In his address to the joint session of Congress Feb. 24, the president announced that education is one of three areas in which his administration intends to increase its investments in coming years. In particular, he challenged all Americans to gain a post-secondary degree or certificate, setting a goal that by 2020, the United States should once again have the highest rate of college degree attainment in the world. The president’s FY 2010 budget overview narrative goes some way towards supporting these priorities, in part by expanding upon the down payments contained in the recovery package.

The budget commits to several increased investments across the education continuum, from early childhood to college. At the K-12 level, it proposes continued support for an Innovation Fund created through the recovery package. While the details of how the fund will operate are still coming into focus, the dollars are intended to help demonstrably successful school systems and non-profit organizations expand their work or test new approaches in closing the achievement gap. Building on local innovation is a promising direction for federal policy to help tackle the toughest urban education challenges.

At the post-secondary level, the budget places hopeful new emphasis on graduating more students from college. As we’ve noted, community colleges enroll increasing numbers of students, but for several reasons fail to get most of them—particularly those from lower-income backgrounds—through to a degree or certificate. A proposed five-year, $2.5 billion Access and Completion Incentive Fund would support state-level efforts to help these students succeed. The key here will be to focus on outcomes, driving dollars toward institutions that both serve the neediest students, and help them succeed in gaining credentials that have real labor market value.

Of course, promoting economic growth and reducing income inequality via education is a long-term, generational strategy. Complementing that are the budget signals indicating increased assistance for lower-income workers, especially through the tax code. It proposes to make permanent and in some cases enhance tax changes in the recovery package targeted to these workers and their families, such as the Making Work Pay Tax Credit, and a more generous Child Tax Credit and Earned Income Tax Credit. The budget actually proposes that the Making Work Pay credit act as an “escape valve” to help offset the impact of higher energy prices on low- to middle-income families that would result from a cap-and-trade system on carbon emissions.

Finally, the appendix to the budget narrative includes a little-noticed proposal to eliminate the Advance Earned Income Tax Credit. Perhaps it’s little noticed because it’s so little used; less than 1 percent of all EITC dollars are paid out through this program, which operates through employers to put a portion of a prospective recipient’s EITC into her paychecks. Getting more credit dollars to families throughout the year is a good idea for several reasons—but the existing Advance EITC has proven ill-suited to the task. We hope the administration follows the example of most other countries, and adopts a new mechanism that pays a portion of the credit directly to eligible filers throughout the year.