Who Should Benefit from the EITC?

By Tyler Bishop

The Earned Income Tax Credit (EITC) is often praised as the nation’s most effective antipoverty program. But tax experts and politicians on both sides of the aisle argue the credit does not provide substantial or equitable relief to all those it aims to support – low- and middle-income working people.

Workers who aren’t raising children receive the least benefit from the EITC, but advocates and lawmakers in both parties are working to change that. John Iselin and Philip Stallworth at the Tax Policy Center recently highlighted the considerable gap in the size of the credit for working parents versus childless workers. They point out that a single parent living at the poverty threshold in the U.S. with two kids receives more than $5,000 from the EITC, while a single childless worker earning a poverty-level income gets only $225.

The takeaway: The EITC plays a key role in providing aid to parents living at or around the poverty line but little or nothing to low-income workers without kids. The maximum credit that can be claimed by a single person or couple with no children is $503. That ceiling is much higher when dependent children come into the picture: $3,359 for one child, $5,548 for two and $6,242 for three or more. And the Child Tax Credit (CTC) provides additional benefits for workers with kids, further increasing the gap between parents and childless workers.

Those working to address this inequity include President Barack Obama and House Speaker Paul Ryan who have introduced nearly identical proposals to expand the credit for childless workers. Several bills in Congress call for similar reforms.

Some advocates, particularly those on the right, argue that the EITC discriminates against another population it was designed to help – married workers. “Marriage penalties” draw scrutiny because, in many cases, married couples—who file their tax returns together—end up with a smaller joint credit than they would if they filed independently. Angela Rachidi, a researcher at the American Enterprise Institute, recently penned an op-ed for U.S. News and World Report, summarizing the penalty:

Marriage penalties in the EITC occur because married couples must file their taxes jointly and consider their combined income, often placing them above the income-eligible threshold or higher up on the phaseout range. Unmarried parents, even those who cohabitate, file income taxes separately. Their individual income is used to calculate the EITC, often resulting in a higher EITC than if their income was considered together. 

Rachidi also performed an analysis that found the Obama-Ryan plan to increase the EITC for childless workers would worsen the marriage penalty by a small amount.  She argued that any expansion for childless workers should include a provision to ensure that the EITC for married couples is matched.

With a new Congress starting up in January and comprehensive tax reform on the table, lawmakers should consider how the EITC can better serve its purpose: giving all low- and middle-income workers more of the money they earned and helping them reach financial stability.