Earned Income Tax Credit: Not just for working families
Tax watchdog suggests expanding EITC to childless workers, young and old
The Institute on Taxation and Economic Policy suggests expanding the Earned Income Tax Credit to childless workers and those not covered under the age restrictions: workers under 25 and 65 and older. (Shutterstock)
By Ted Cox
A leading tax-policy watchdog is suggesting that the Earned Income Tax Credit be expanded beyond working families to childless low-wage employees, especially young adults and senior citizens.
The Institute on Taxation and Economic Policy issued a report this week on “Expanding State EITCs.” Calling the federal tax credit’s emphasis on working families with children “inequitable,” it traced the potential impact of expanding the benefit to workers without children, especially young adults and senior citizens not covered under current federal age restrictions.
The Earned Income Tax was first considered by President Nixon and grew out of conservative economist Milton Friedman’s proposal for a “negative income tax” to aid those in need. Enacted in 1975, it basically grants a tax rebate to low-wage workers who meet the qualifications, with conservatives favoring it over Universal Basic Income because it rewards those who are employed, even at low wages, rather than simply handing out money to those in need. States including Illinois have followed suit with their own programs, usually at a set percentage of the federal benefit. The Illinois EITC is set at 18 percent of the federal amount, raised in recent years from the previous 10 percent.
ITEP points out it has always favored those with children, and the group argues that it’s been tweaked over the 45 years to the detriment of low-wage workers who don’t have children. According to this week’s report, the “maximum credits for the federal EITC in 2020 are as follows: $538 for childless adults, $3,584 for recipients with one child, $5,920 for recipients with two children, and $6,660 for recipients with 3 or more children. Income limits also increase with the number of children in the home.”
Calling that “inequitable,” ITEP points out: “The maximum credit is seven times more generous for adults with one child, 11 times more generous for recipients with two children, and more than 12 times more generous for larger families with three or more children.” It charges that, in effect, the EITC “taxes some impoverished, childless adults deeper into poverty.”
“Proponents are quick to point out that, because the money is going to low-wage workers suddenly able to buy things they otherwise couldn’t afford, it tends to go right back into the economy. Estimates are that for every 5 percent expansion in the number of people getting the EITC in Illinois, $52 million goes into the state economy.”
Federal tax policy is not likely to change in this election year, but the ITEP report points out that “states do not have to wait for the federal government to begin making progress in this area.” It recommends expanding the tax credit not just to childless workers — including those who’ve officially lost custody to children they have — but also young adults and senior citizens who do not qualify under the federal age range of 25 to 64.
ITEP provides a state-by-state breakdown of what expanding the low age range, the high age range, and both along with childless workers of all ages at a 100 percent match with the federal EITC would mean to local economies. According to the report, if Illinois were to expand the EITC to those 18 to 24, it would cost $11 million, but would affect more than 200,000 people across the state. Expanding it to seniors 65 and older would affect 35,000 and cost just $1.3 million.
Expanding it to all low-wage workers, at 100 percent of the federal benefit, would cost the state $135 million, but it would also put money back in the pockets of almost a half-million Illinoisans, 483,000.
“Economic Security for Illinois supports including these workers,” said Harish Patel, director of the group advocating expansion of the EITC as a way to achieve an income floor for all workers. “They are our neighbors and friends, and they are left out despite the fact that they contribute to our economy with their hard work and by paying their taxes. Additionally, we know that when these workers get more of their money back, they spend it on local businesses, creating a ‘multiplier effect’ that boosts the local economy.”
Patel and other proponents are quick to point out that, because the money is going to low-wage workers suddenly able to buy things they otherwise couldn’t afford, it tends to go right back into the economy. Estimates are that for every 5 percent expansion in the number of people getting the EITC in Illinois, $52 million goes into the state economy.
The report points out that the District of Columbia has already endorsed a full 100 percent match of the federal benefit, while California has moved to open it to young adults and seniors. Maryland, Maine, and Minnesota have all made provisions for low-wage workers without children.
“The EITC lifts millions out of poverty, allows them to better meet their most basic needs, and helps to position them for long-run economic security,” the ITEP report concludes. “Childless workers, specifically those 18 to 24 years old and over age 65, have for too long been denied this essential support. State lawmakers can work to correct this inequity and greatly benefit childless adults in their states by enacting reforms that would expand age eligibility and increase the credit for this population that has historically been left behind.”