In the wake of the 2016 election, we turned to two federal EITC policy experts to tell us their views on what’s next for the federal EITC. Robert Greenstein, Founder and President of the Center on Budget and Policy Priorities, and Elizabeth Kneebone, Fellow at the Metropolitan Policy Program at the Brookings Institute, provided their thoughts in response to the following question:
Given the outcome of the election, what are the prospects for maintaining or changing the federal EITC in the new administration and next Congress?
Founder and President of the Center on Budget and Policy Priorities
We likely face a large tax bill in the wake of an election that significantly focused on the economic distress of working Americans. The EITC is one of the most effective tools we have to offset downward wage pressure, and one of the most important tax provisions for working class people. A significant EITC expansion may be possible, but that is far from certain. Action is needed to broaden the debate on a possible tax bill to include EITC improvement.
Both President-elect Trump and the House GOP have advanced massive tax cut plans. Those tax cuts are skewed overwhelmingly to the wealthiest Americans. And neither plan includes a proposal to help approximately 7 million of low-wage workers who aren’t raising children — the lone group taxed into, or deeper into, poverty by the federal tax code. These individuals face the same downward wage pressures as other working class people but are either excluded from the EITC or eligible for a very small credit. Previously, however, Speaker Ryan championed a proposal to expand the EITC for these workers.
Bipartisan proposals from President Obama, Speaker Ryan, and other Members of Congress (such as Senator Brown and Rep. Neal) would create a meaningful EITC for workers not raising children by substantially increasing the amount of the credit and extending eligibility for the credit to younger workers, who currently can’t qualify. The effects of these proposals are summarized in this report and highlighted in the chart below:
We expect a major tax debate in 2017. Right now, the political deck seems stacked in favor of a very big, costly tax cut for the highest income households and multi-national corporations. Making sure that low-income workers aren’t taxed into or deeper into poverty should be a top priority for any tax bill. We need both to remind policymakers to address the economic circumstances of working-class people and to explain that the EITC is a proven policy that increases work effort, reduces poverty, and has other positive effects — and that if expanded in a thoughtful manner, it can do still more.
Fellow at the Metropolitan Policy Program at the Brookings Institute
The President-elect’s campaign proposals and the House Republican’s Better Way policy agenda suggest that there may be opportunities to expand the EITC under the incoming unified government, but we should also expect to see increased scrutiny around improper payments.
At minimum, President-elect Trump’s team has said his tax proposals would not change the EITC. More recently, Trump has proposed using the EITC as a means of delivering rebates on childcare expenses as part of a broader plan to make childcare more affordable. Under that plan, low-income working families with eligible childcare expenses would be able to increase their EITC by the equivalent of up to half of their payroll tax contributions (or up to about $1,200 per family) to offset childcare costs.
When House Republicans drafted their Better Way anti-poverty policy agenda earlier this year, they wrote that “[i]ncreasing the EITC would help smooth the glide path from welfare to work.” While that report did not include specific recommendations, it is likely referring to a proposal that has garnered bipartisan support in recent years, including from House Speaker Paul Ryan, to expand the EITC for workers without qualifying children. Ryan and others have proposed doubling the childless worker credit and lowering the minimum age for eligibility from 25 to 21.
Whether an expansion will attract bipartisan support in practice may rest in part on whether Democrats and Republicans can agree on how to pay for it. Democrats tend to favor closing corporate loopholes, while Republicans have proposed cuts to other safety net programs.
The next Congress is also likely to bring heightened attention and policy action around reducing improper payments, another goal with bipartisan support in principle but where it may be difficult to find consensus on what steps to take in practice. While it does not point to specific measures, the Better Way report suggests the next Congress will look for ways to verify income and eligibility for the EITC before issuing payment.