American Enterprise Institute economist Angela Rachidi explores the benefits and costs of expanding the Earned Income Tax Credit (EITC) to be more generous to childless workers. Such a proposal would help many struggling Americans, particularly younger workers, as the EITC overall has helped single mothers and families.
However, any expansion raises concerns about extending government assistance to many people without dependents who should be able to adequately provide for themselves. And the cost of expanding the EITC could eventually reach billions of dollars a year.
Among Rachidi's key findings:
- Proposals for an earned income tax credit (EITC) expansion for childless workers vary in terms of the size of the credit, the earnings limits for eligibility, and eligibility exclusions. These variations have important implications for who benefits and the associated costs.
- An expansion of the EITC for childless workers could reach 8-14 million workers and cost $5-8 billion in new spending, depending on whether students are excluded and work requirements are adopted. A more generous option could reach 21 million workers but would require as much as $22 billion in new spending.
- Young people (ages 21–24) are the primary beneficiaries of proposed expansions, as are men, who would receive approximately 55–60 percent of benefits from any expansion. Women, older workers, and married couples also benefit, but to a lesser extent.
- Student exclusions and work requirements would lower costs but may be difficult to administer.
Read Angela Rachidi's full briefing on the Earned Income Tax Credit here.
Additionally, American Enterprise Institute economist Michael Strain in a column for Tribune Media breaks down the problems with the simplistic approach of raising the minimum wage. While some impacts, including job losses, are widely discussed as the policy debate continues, Strain highlights other problems.
For example, only 19 percent of the expected earnings increase for those working at the minimum wage would actually go to households living in poverty. Almost 30 percent would go to households with an income level three times the federal poverty limit. Because many of the workers earning minimum wages are young people living at home with their parents and are middle class already, the minimum wage is a deeply flawed anti-poverty solution.
A much more targeted approach would be the raise the Earned Income Tax Credit, which is targeted at workers with low wages. It incentivizes work, doesn't destroy jobs and impacts those who need it most.
Read Michael Strains column on the advantages of the EITC over a minimum wage hike here.