By Elvis Guzman:

Representative Paul Ryan’s recently published anti-poverty proposal leaves much to be desired. Some anti-poverty experts question his plans to slash spending on the Supplemental Nutrition Assistance Program and Temporary Assistance to Needy Families programs. Others blast his proposal to penalize poor people who can’t find jobs through Opportunity Grant contracts. But there is something in his plan for progressive thinkers to be happy about: expanding the Earned Income Tax Credit (EITC).

The EITC is the only anti-poverty program that people from both sides of the aisle can agree on its effectiveness at cutting poverty rates and incentivizing work. The federal credit removes 6.5 million people, half of them children, from poverty every year by offsetting some, and in most cases most, of their tax liabilities. Since the federal credit is refundable, many families also receive a refund after filling their tax returns which serves as supplemental income.

Not only is the EITC effective at reducing poverty, it also encourages people to return to the work force and to work more hours. The mechanism that leads to this effect is that benefits are tied to income level: as the worker’s income rises, the credit amount also goes up. Depending on their annual income, families with three or more children typically receive a maximum credit of $6,143, while those with only one child can receive a maximum of $3,305.

Despite the EITC’s effectiveness at reducing poverty among families with children, the credit does not provide enough support for childless families and noncustodial parents. These families are only eligible to receive a maximum credit of $496 ($264 on average compared to an average of $2,905 for married families), and they often still face tax liabilities, which may drag them down further into poverty. In fact, only 3 percent of EITC funding goes to childless workers.

This graph represents the tax code’s effect on the poverty rate for different populations.


Source: Poverty and the Tax Code, Democracy: A Journal of Ideas

Rep. Ryan’s proposal notes the positive impacts the EITC has had and advocates for extending these benefits to childless and non-custodial parents. A number of progressive organizations wholeheartedly agree with expanding the EITC in this way.

The need to expand this program is not a partisan issue. In fact, the program has been previously expanded several times, including in 1986 under the Reagan administration and in 1993 under the Clinton administration. Recently, despite the political climate in Washington, the credit was expanded even further for married couples and families with children under Obama through the American Recovery and Reinvestment Act of 2009 (ARRA), the Tax Relief, Unemployment Insurance Re-authorization and Job Creation Act of 2010, and the American Taxpayer Relief Act of 2012. These changes, however, are set to expire in 2017 unless Congress decides to either extend the changes further or make them permanent.

A recent report, released by the Center for Global Policy Solutions (CGPS) highlights trends in individual net-worth by race and ethnicity. The study found that people of color were the most negatively impacted by the Great Recession and are still struggling to recover. In fact, African Americans and Latinos own only 6 and 7 cents for every dollar of wealth owned by White households.

As part of the Closing the Racial Wealth Gap Initiative, CGPS also put forward a list of national policy priorities that would help vulnerable populations achieve economic security, including the need to make permanent the expansions extended by ARRA and the Tax Relief Act. Establishing sunsets for these expansions will only leave struggling families more vulnerable.

Similar to Rep. Ryan’s plan, we also recommend expanding the credit for childless workers and non-custodial parents by reducing the qualification age to 21, raising the maximum credit to $1,350, increasing the phase-in rate, and increasing the phase-out income level.

Source: Expanding Opportunity in America: A Discussion Draft from the House Budget Committee

The EITC does come with a price: the program’s expenses total $63 billion –the largest anti-poverty programs in the federal budget. Yet, the credit is far-reaching and successful because it benefits over 28 million working families who typically earn low wages and would struggle to pay off their tax liabilities without the credit.

Rep. Ryan’s proposal to provide EITC refunds as installments via their employer’s paycheck is innovative since current recipients receive their benefits as lump sums. This idea, however, should be studied further as evidence overwhelmingly shows EITC recipients use the credit to pay for daily necessities, their education, and job training. Changing the credit’s delivery system could change the recipient’s behavior, so we should be careful when making such dramatic changes.

While this option is being studied, we should provide free tax preparation services for low-income families who need assistance filling-out their tax form. This process will help increase access for families, since only three-fourths of families who qualify actually claim the credit.

Still, there are political disagreements as to how this expansion should be funded. While most proposals from Democrats, including President Obama’s proposal, call for the elimination of tax loopholes, such as the carried interest loophole and the Gingrich-Edwards loophole, Rep. Ryan wants to cut social programs, such as the Fresh Fruits and Vegetables Program and the Farmers’ Market Nutrition Program. His position to fund EITC expansion by cutting important programs that help struggling communities is shortsighted and imprudent given the multiplicity of needs facing low-income families.

Policymakers who hold an opposing ideology should, at the very least, be open to listening to Rep. Ryan’s ideas. As his proposed EITC expansion proposal suggests, there are areas of agreement where all political parties can work together to produce effective policies. Still, anti-poverty advocates should stand strong against those proposals that undermine vulnerable families, particularly people of color, who depend on policymakers making decisions that will help provide better economic opportunities.

Elvis Guzman is the Research Associate for Economic Security at the Center for Global Policy Solutions.