Building on the EITC and CTC to Fight Poverty and the Rising Cost of Living

By Marie Wilken

Experts and elected officials at an Urban-Brookings Tax Policy Center event on Tuesday identified the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC) – and policies building on those credits – as primary vehicles to fight poverty and address the rising cost of living.

Sen. Sherrod Brown (D-OH) noted that while wages are stagnating, costs for things like housing, education and prescription medicine continue to rise. “The number one tool we have to help Americans keep up with these expenses is expanding the Earned Income Tax Credit and the Child Tax Credit,” Brown said. “These are the two most effective ways to put money into the pockets of the American people.”

Brown said that a number of legislative proposals would expand the credits and that Democrats are united around an agenda that includes: ensuring that every child gets the full CTC, regardless of what their parents do; expanding the EITC for workers without dependent children; and allowing people to get an advance of their EITC payment once a year.

During a panel moderated by Eillie Anzilotti, assistant editor at Fast Company, participants discussed several proposals to expand or build on the EITC and CTC. 

Elaine Maag, principal research associate at the Urban-Brookings Tax Policy Center, said that these proposals would build on policies already proven to be successful.  And she noted that research shows expansion would have other positive effects, like encouraging child support payments and bringing people into the formal labor market.

In comparing proposals that expand the tax credits, Maag said, “It’s worth noting that all of this big legislation coming out, they’re starting at different points,” such as a focus on work or children.

Adam Ruben, campaigns director for the Economic Security Project, discussed the so-called “Cost-of-Living Refund” policy proposal, which takes a three-part approach:

  • Expanding the EITC’s size and eligibility (to taxpayers younger than 25 and older than 65, and “dramatically” increasing the size of the credit for those without dependent children)
  • Expanding the definition of work to extend beyond formal jobs in the paid economy
  • Making the process of claiming the EITC more “user-friendly” (including reforms like monthly payments and automatically contacting those who are eligible).

Aparna Mathur, resident scholar at the American Enterprise Institute (AEI), agreed that the EITC is one of the most successful anti-poverty programs, in part because of the direct cash transfers and the credit’s promotion of work.  But expanding it can be costly and would fail to help a significant number of people, she noted.

“We tend to view the Earned Income Tax Credit as solving a lot of problems across the country … The fact that the EITC is so closely tied to work leaves out a lot of the working poor,” Mathur said.

Aisha Nyandoro, chief executive officer of Springboard to Opportunities, said, “Yes, there are policy tradeoffs when we talk about how to go about implementing these large system changes. But what we’re doing is not working. That’s the reality.” She described the “power of cash” to promote people’s agency and solve everyday problems.

The event concluded with remarks from Congresswoman Gwen Moore (D-WI), who said she has been a critic of certain welfare policies like Temporary Assistance for Needy Families (TANF) that don’t “really put people on that trajectory of climbing out of poverty.”

“But the Earned Income Tax Credit … is a program that really has some legs,” she said.

Moore also said the current EITC isn’t doing enough to supplement wages and the policy is 40 years old, “which means a revamp is long overdue.”

Her forthcoming Worker Relief and Credit Reform Act would simplify the EITC, decouple it from the worker’s number of dependent children, lower the minimum age limit, eliminate the maximum age limit and increase the amount of the credit to a maximum of $4,000 for single filers and $8,000 for married filers. She hopes the policy can reach two groups currently left behind by the EITC: students and caretakers.

Moore also pointed to the economic benefits of expanding the EITC. “The Earned Income Tax Credit really increases productivity,” she argued. “Anybody who’s eligible for the EITC isn’t going to be buying back shares of stock … They’re going to be spending money and giving back to the economy.”