EITC reform: Good for Children and their Families?

Poverty & Family Economics

Many leading elected officials, including President Barack Obama, Chairman of the House Ways and Means Committee – U.S. Rep. Dave Camp (R-MI), and U.S. Senator Marco Rubio (R-FL) have make recent policy proposals to reform the Earned Income Tax Credit (EITC). All of their EITC proposals are serious and deserve further examination as to how they might impact children and families.

First enacted in 1975 and made permanent in 1978, the Earned Income Tax Credit (EITC) is now the nation’s largest federal anti-poverty cash program. The EITC is a refundable tax credit (meaning an individual need not owe any taxes to receive the benefits) available to eligible workers who earn relatively low wages. Eligibility is based on income, age, residence, and number of qualifying children. The credit phases in at the lowest income level for single workers and increases with the number of eligible children in a worker’s family before phasing out again at a higher income threshold.

EITC has enjoyed strong bipartisan support throughout its life on Capitol Hill and in the White House. As an example of the program’s impact and reach to low-income working families, according to the Tax Policy Center, the EITC served 28 million tax filers who received a total of $60 billion in 2012. According to another study, the average EITC amount was $2,905 for a family with children and $264 for a family without children in 2011.

President Obama’s EITC reform proposal contained in his Fiscal Year 2015 budget that was released this week, would double EITC amount available to childless adults. His proposal would also make permanent the EITC enhancements enacted in 2009 that greatly help very low-income families.

Chairman Camp’s EITC reform proposal contained in his Tax Reform package released last week would restructure the EITC with lower maximum credits for tax filers with children, although indexing them for the future years. Chairman Camp’s tax reform proposal is complex and includes components that would help millions of families with children too, including expanding and indexing the Child Tax Credit.

In January 2014 U.S. Senator Marco Rubio announced his intention to introduce and champion legislation that would greatly enhance EITC for childless workers. Senator Rubio’s proposal would level the income eligibility levels for childless adults and families with children. Currently, more than 95% of EITC goes to support families with children and that percentage of the program dedicated to these families would be significantly reduced under Sen. Rubio’s proposal.

Also, House Budget Chairman and former Vice Presidential candidate Paul Ryan (R-WI) is also expected to release a new EITC proposal in the coming weeks.

All taken together, that’s a great deal of bipartisan energy in Washington about EITC reform in a short time period. According to Census data, EITC has been and remains a valuable tax program that helps to lift more than 6 people, including more than 3 million children, out of poverty every year. As political leaders consider various and significant reforms to the EITC, they must ensure that the EITC program continues to prioritize children and their families. Any expansion of EITC for childless adults needs to protect, or even enhance, the current provisions that help families with children.