The Earned Income Tax Credit (EITC) is one of the federal government’s most effective antipoverty policies. In 2012 alone, it lifted about 6.5 million people out of poverty, including roughly 3.3 million children. Designed to incentivize work, the program has been hugely successful in boosting employment rates among poor single mothers. And these accomplishments have led to broad bipartisan support from figures such as Paul Ryan, Greg Mankiw, and Patty Murray.
However, the EITC still falls short of its potential, in large part because it offers little to no support to many of the workers who need it most. As such, it’s encouraging that President Obama chose to make expanding the EITC a priority in his fiscal year 2015 budget. Still, we think there’s opportunity for more robust reforms that further broaden the reach of this important program—at no additional cost to taxpayers.
The president’s plan takes some modest (but important) steps toward strengthening this make-work-pay policy. First, it would increase benefits to workers without children—a subgroup that has historically received very little help from the program. More specifically, the White House would double their maximum credit from about $500 to about $1,000, raise the income level at which their benefits are fully phased out from about $15,000 a year to about $18,000 a year, and loosen the age eligibility restrictions so as to include childless young adults between the ages of 21 and 25. The president also proposes making permanent the benefit expansions for married couples and families with three or more children that were temporarily enacted through the Recovery Act.