Over the last month, the number of unemployment claims has risen to 22 million, with low-wage workers – those who are the most vulnerable and have the least amount of job protection – in the bull’s eye of the pandemic’s threat to the labor force. This economic crisis has already erased the number of jobs gained since the Great Recession, and it is time for policy makers to think boldly about what it will take to equitably rebuild our economy.
The EITC, which puts money directly back into the pockets of low-income workers, is a proven policy tool that can be restructured to be made even more effective for those who need it most. In March, U.S. Representatives Ro Khanna and Tim Ryan proposed legislation to establish an emergency federal EITC worth between $1,000 and $6,000 for those earning less than $65,000 last year. In early April, more than 40 Democratic and independent senators, including Sen. Sherrod Brown, Sen. Michael Bennett, and Sen. Ron sponsored a bill that would expand the CTC and expand the age eligibility as well as raise the maximum EITC amount for both workers with and workers without children.
Looking to the EITC for targeted relief makes sense. In contrast to other essential policies put into place to combat recessions, the EITC specifically concentrates its benefits on low- and moderate-income workers. About 90 percent of EITC benefits are distributed to 40 percent of the lowest-income households. But the benefits are tied to work, which at a time when four out of five workers are under stay at home orders, has policy experts calling for a restructuring to make the tax credits work for families and households in this moment.
Aidan Davis, Senior Policy Analyst at ITEP provides three concrete proposals to temporarily modify the tax credit’s structure to make it work for families: tying this year’s credit to last year’s tax filings, a more stable year for earnings; adjusting the phase-in range and adjusting the earnings level needed for full eligibility downward; and expanding the definition of “earned income” to include unemployment insurance.
Elaine Maag, Principal Research Associate at the Tax Policy Institute wrote a piece in Forbes urging Congress to invest in the EITC and recommending structural reforms that would advance and increase payments. Maag also points to the shortcomings of the current credit, which brings only small relief to workers without dependent children and maintains a narrow definition of work.
These proposals work to both retain the value of the EITC and expand its reach, worthy goals at a time when families and individuals who are already economically vulnerable are most at risk during the COVID-19 pandemic and economic shutdown.