Expanding the EITC: The President's Proposal

Wednesday, March 5, 2014Tax Credits for Working Families

Our Speakers

Aviva Aron-Dine, Associate Director for Economic Policy, Office of Management and Budget

Elaine Maag, Senior Research Associate, Tax Policy Center

Robert Doar, Morgridge Fellow in Poverty Studies, American Enterprise Institute

Sharon Parrott, Vice President for Budget Policy and Economic Opportunity, Center on Budget and Policy Priorities

Moderator:

Deborah Stein, Tax Credits for Working Families

The President’s Proposal to Expand the

Earned Income Tax Credit

Aviva Aron-DineAssociate Director for Economic Policy

Office of Management and BudgetMarch 5, 2014

Context for the Proposal: Success of EITC for Families with Children

Together with the refundable Child Tax Credit, it lifts 10.1 million people (5.3 million children) out of poverty

Increases labor force participation

o Recent study found EITC leads 1/10 parents who would otherwise not be working to enter the labor force

o Studies found 1980s and 1990s EITC expansions pulled more than half a million people into the workforce

Positive impacts on children’s outcomes: infant health, educational achievement, college going

Context for the Proposal: Federal Taxes and Poverty

Context for the Proposal: Labor Market Trends

The President’s Proposal to Expand the Earned Income Tax Credit

Current “Childless Worker” EITC

1. Too small

2. Phases out at too-low incomes (more than halfway phased out at the poverty line)

3. Younger workers (less than 25) aren’t eligible

Proposal

4. Double maximum credit

5. Raise income level at which credit is phased out to ~$18,000

6. Lower age limit to 21 • Also raises upper age limit to harmonize

with Social Security full retirement ageCurrent Law and Proposed Childless Worker EITC Parameters

Current Law Proposal

Phase-in rate 7.65% 15.3%Phases in up to $6,570 $6,570Maximum credit $503 $1,005Phase-out rate 7.65% 15.3%Phase-out starts* $8,220 $11,500Phase-out ends* $14,790 $18,070

* Under both current law and the proposal, levels are $5,500 higher for married filers.

Impact of the Proposal: Examples

Examples

• Single worker at the poverty line. An individual who works 35 hours per week at the minimum wage earns $12,688, close to the poverty line for a single adult in 2015. Under current law, this individual would receive an EITC of only $161 ($503 less 7.65% x earnings over $8,220). Under the proposal, the worker would receive an EITC of $823.

• A 23-year old earning just above the minimum wage, with an income of $15,000. Under current law, this worker is doubly ineligible for the EITC, by virtue of her age and the fact that her earnings are above $14,790. Under the proposal, she would be eligible for an EITC of $470.

Impact of the Proposal on Poverty

Impact of the Proposal: Who Benefits?Workers Benefiting from Childless Worker

Expansion (Millions) TotalALL 13.5 LESS THAN AGE 25 3.3 AGE 25-64 9.9 64-65 0.3 MEN 7.4 WOMEN 6.1 AFRICAN AMERICAN 2.0 LATINO 3.3 WHITE 7.2 ALL OTHER 1.0

WITH A SELF-REPORTED DISABILITY 1.3Source: CEA calculations from Current Population Survey data

The 15 Most Common Occupations Among Workers Benefiting from Proposed EITC Expansion

Workers (Millions)

Cashiers 0.7Retail salespersons 0.6Waiters and waitresses 0.6Cooks 0.6Janitors and building cleaners 0.5Laborers and freight, stock, and material movers

0.4

Stock clerks and order filers 0.3

Nursing, psychiatric, and home health aides 0.3

Maids and housekeeping cleaners 0.3Personal and home health care aides 0.3Ground maintenance workers 0.3Construction laborers 0.3Truck drivers 0.3Child care workers 0.2Food preparation workers 0.2Source: CEA calculations from Current Population Survey

Data on current EITC suggest 1.5 million or more of those benefiting would be non-custodial parents

Paying for the Proposed EITC Expansion

Proposed EITC Expansion and Revenue Offsets

10-Year Revenue Gain (+)/Loss (-)

Proposed EITC expansion -60

Close self-employment tax loophole for professional services 38

Close “carried interest” loophole 14

Other (strengthen shareholder liability for tax shelters, conform tax basis rules for capital gains) 9

NET TAX CHANGE 0

Note: Totals do not add due to rounding.

For additional information about the proposal and estimates of its impact:http://www.whitehouse.gov/sites/default/files/docs/eitc_report_0.pdf

Moderated Discussion

Who will benefit?

Real Federal Spending on the EITC, CTC, SNAP, and Welfare

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AFDC/TANF

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ions

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2011

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lars

Real Federal Spending on EITC, CTC, SNAP and Welfare

Sources: AFDC/TANF, SNAP: Budget of the United States Government, Fiscal Year 2014; for AFDC/TANF, "Family and Other Support Assistance" line; EITC and CTC: Internal Revenue Service Statistics of Income, various years; CPI deflator: Bureau of La-bor Statistics. For CTC and EITC, we convert tax year data to fiscal year data by applying a 20-80 split.

EITC

CTC

Food Stamps/SNAP

Tax Entry Threshold – Before and After Tax Credits, 2014

Single, No Child

ren

Single, One Child

Single, Two Child

ren

Married, N

o Children

Married, O

ne Child

Married, T

wo Children

$0

$10,000

$20,000

$30,000

$40,000

$50,000

Poverty

Tax Entry Before Cred-its

Tax Entry After Credits

FY15 Budget

Assumes all income comes from earnings; chil-dren qualify for CTC and EITC and no other cred-its.

Moderated Discussion

How will this work in practice?

Moderated Discussion

What comes next?

States with EITCs

Questions?

Please type your questions

in the Q and A box

Developments

http://bit.ly/expandingEITC

http://www.taxcreditsforworkingfamilies.org/blog

Tax Credits for Working FamiliesManaged by The Hatcher Group

Debbie Stein and Lauren PescatoreDebbie@thehatchergroup.com

www.taxcreditsforworkingfamilies.org(301) 656-0348

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