As the tax filing season opens, the Internal Revenue Service, local government agencies and nonprofits across the country have launched their annual campaign to inform potentially eligible workers about the Earned Income Tax Credit and to help them claim it.
IRS estimated that about 21% didn’t in 2010. Roughly 26% didn’t here in the District of Columbia — a higher percent than in all but five states.
The District workers missed out not only on the federal credit, but on the credit the District provides in its own tax code. Twenty-five states have their own EITC as well, though one of them — North Carolina — won’t after this filing year.
Notwithstanding the missing claimants, the EITC is one of the most powerful anti-poverty programs we have — second only to Social Security. Last year, it lifted 6.5 million people, including 3.3 million children above the poverty threshold.
This is partly because it’s a refundable credit. In other words, if claiming it reduces what filers owe to less than zero, IRS pays them the negative balance. The EITC is also refundable in all but four states that have one.
The EITC enjoys broad support across the political spectrum — something you can hardly say for most other programs that only people below a certain income level qualify for. This is because it’s available only to people who’ve earned income by working — and thus widely viewed as a work incentive.
A substantial body of research indicates that it actually is — or at any rate, has been, since much of the work has focused on single-mother employment in the late 1990s, shortly after welfare “reform” and several expansions of the EITC.
Yet, as I’ve written before, the EITC shortchanges childless workers. Those under 25 aren’t eligible for the credit at all. For those who are older, the credit is very small — just 7.65% of earned income to a maximum of $496 for this tax year.
And there will be no more credit available for a single childless workers when earnings reach $14,590 — less than what a full-time, year round job at the federal minimum wage pays. Hardly better for childless married couples.
These restrictions doubly disadvantage childless workers in the District and most of the EITC states because their tax credits are pegged to the federal. In other words, workers are eligible for a fixed percent of their federal EITC benefit.
Here in the District, it’s 40%. So the maximum childless workers can to receive this year is $195 — a partial explanation perhaps for those missing claimants.
The Center on Budget and Policy Priorities notes that some prominent conservatives have recently recommended reforms to make the EITC a more effective support for childless workers — mainly as a substitute for raising the minimum wage.
Such reforms are nevertheless one anti-poverty measure that might bring conservatives and progressives together, CBPP cautiously suggests.
Caution is certainly called for here — and not only because conservatives are pumping the EITC as a way of dumping on the long-overdue federal minimum wage increase.
We’ve got EITC reform bills in Congress right now that would drop the eligibility age to 21, double the maximum credit for childless workers, boost the rate at which their earnings rise to the maximum and extend the phase-out.
No Republican cosponsors. One reason may be that expanding the EITC will result in more and larger refunds. As Politico notes, they’re counted as federal spending — something we’d hardly expect Republicans to support more of (except for defense).
Thus, for example, Presidential-hopeful Marco Rubio’s anti-poverty plan would replace the EITC with a wage subsidy that would benefit childless workers and families with children equally. But, says his spokesperson, the proposal will be revenue neutral. So it will take from one needy group to give to another.
If President Obama really thinks that he and Rubio can work together to strengthen the EITC for single childless workers, as his State of the Union address suggested, he’s probably in for another disappointment.
And clearly disappointment from lead House Republicans, who swiftly found reasons to oppose the as-yet unseen EITC expansion in his Fiscal Year 2015 budget.
As with the minimum wage, the District may just forge ahead rather than wait for Congress to do what it seems unlikely to do in the near future.
The DC Tax Revision Commission has recommended changes that would make the District’s EITC significantly more beneficial to childless workers. They would:
- Raise the maximum credit to 100% of the federal credit.
- Extend the availability of the maximum credit to $17,235 of adjusted gross income for both single and married childless workers.
- Fully phase out when AGI reaches $22,980.
The EITC is often referred to as a measure that makes work pay. The Commission’s proposal would certainly make work pay more for childless workers at the low end of the income scale.