Last month the White House, along with Republican congressional leadership unveiled their long-awaited blueprint for tax reform. The document, “Unified Framework for Fixing our Broken Tax Code” lays out the majority party’s priorities for a major overhaul of the current tax system.
While many hallmarks of previous Republican tax proposals are incorporated into the document, one proposal that has previously enjoyed support from congressional leadership on both sides has been glaringly omitted—the Earned Income Tax Credit (EITC).
This refundable tax credit puts money directly into the pockets of low-income workers and is largely credited as being one of the most effective anti-poverty programs administered by the federal government. The credit, along with the Child Tax Credit, have long enjoyed support from both parties in congress and represent an increasingly rare issue of bipartisan agreement. The fact that it wasn’t mentioned in the “Unified Framework” document amounts to a considerable missed opportunity on behalf of the Republican leadership.
One way congress can capitalize on the tax reform opportunity is by significantly expanding the EITC for younger workers without custodial children. This population is poorly served by the EITC in its current iteration, causing them to miss out on the benefits of this successful program. Currently, workers under 25 are completely ineligible, while the maximum credit for those who do qualify is extremely low, leaving them without much financial benefit.
Under current law, the maximum credit for a childless worker is $506, available only when a worker’s earnings are between $6,610 and $8,270 annually. Once their earnings exceed $8,270, the credit begins phasing out and disappears completely when a childless worker’s earnings exceed $14,880 annually. Such a small credit is not enough to offset their tax burden, and so does little to help them out of poverty. Since they are also unable to claim the Child Tax Credit, they are essentially excluded from two of the government’s most powerful anti-poverty resources, despite working and being low-income.
In 2015, then House Ways and Means Committee Chair, Paul Ryan, issued a proposal that would double the size of the maximum credit for childless workers to $1000, while lowering the age threshold from 21 to 25 years of age. This proposal would benefit almost 1.5 million Californians and ensure that the credit helps young workers who are struggling to make ends meet. This proposal is also an example of a Republican leader advocating for a tax policy that enjoys support from the opposite side of the aisle.
Former President Obama issued calls for a similar proposal, while Democrats in Congress like Senator Sherrod Brown and Representative Ro Khanna have floated similar proposals this year.
United Way Bay Area fully supports expanding the EITC for childless workers and we took the opportunity to weigh in with our congressional delegation this year during the August congressional recess. We met with members and staff from 15 congressional districts to showcase the impact the EITC is having throughout the Bay Area, while highlighting how an expansion could provide a considerable boost to young working people throughout the region. Recognizing that the tax reform conversations would start to heat up in the fall, we took advantage of the summer recess to let our leaders know one of the best ways they can help working people in the Bay Area.
Now that the tax reform framework has been made public, there will no doubt be much discussion and several iterations before final legislative language is agreed upon. To the Republican leadership’s credit, the “Unified Framework” calls for an expansion to the Child Tax Credit. While the details of that expansion have yet to be determined, we applaud the Framework’s authors on including an improvement to the CTC. However, if congress wants to truly deliver a tax reform package that lifts up working people, they should also include an expansion to the EITC. Doing so would leverage the opportunity of tax reform to put workers back on a path toward prosperity.
You can lend your voice to the fight by signing a letter to your congress member in support of expanding the EITC. Learn more about how United Way Bay Area connects workers to the Earned Income Tax Credit.