Budget Buster: Earned Income Tax Credit Expansion

A recent Democrat proposal, H.R. 5271, the Worker Relief and Credit Reform Act of 2019,[1] calls to drastically broaden the Earned Income Tax Credit (EITC), a program which has already been expanded several times since its enactment in 1975. The EITC provides refundable tax credits for low and moderate-income households. Because the credit is refundable, if the amount of the credit – which varies by family size and income – exceeds federal income taxes owed, beneficiaries receive a check for the difference.

The Worker Relief and Credit Reform Act of 2019 Would Bust the Federal Budget. H.R. 5271 would significantly increase the cost of the EITC program through various expansions. First, the bill would markedly broaden program income eligibility. Under current law, income eligibility ranges from $16,000 (for childless individuals) to $56,000 (for married individuals with a minimum of three children).[2] This proposal would  make it so families earning up to $90,000 per year would be eligible for benefits.[3] Second, the bill would lower the age of eligibility from 25 to 18, and eliminate the maximum eligibility age, which is currently set at 65. Third, the bill would increase the maximum credit from $6,600 under current law to $8,000.[4] Finally, the proposal would allow family caregivers and students to be eligible for the maximum EITC credit.

Altogether, these EITC expansions would cost the federal government $2.5 trillion over ten years.[5] When taking into account the net interest costs of funding the proposal – an additional $358 billion – the total price tag amounts to $2.9 trillion. On an annual basis the cost of the EITC would increase from $74 billion to more than $300 billion, which would make it the fifth-largest program in the federal budget. This new spending would be in addition to the $9.5 trillion of anti-poverty mandatory spending efforts projected over the next decade.[6]

The Worker Relief and Credit Reform Act of 2019 is Unworkable. The U.S. Government Accountability Office estimates the EITC had an improper payment rate of 25 percent in fiscal year 2018, equating to $18 billion in program fraud and abuse. The EITC should be fixed so that it works better for American families. Taxpayers should be prioritized before broadening the program. Further, H.R. 5271 would also eliminate the requirement to have earned income in order to qualify for the benefits, which would undercut the program’s purpose of rewarding work.

Republican Solutions for Enhancing Wages. The key to improving wages for working Americans is a strong, growing economy. By removing burdensome regulations and supporting pro-growth policies such as tax reform, Republicans in Congress have helped build the strongest job market in five decades. Last month marked the 126th consecutive month of economic growth, the longest period of uninterrupted growth in American history. Families are seeing larger paychecks, with median average earnings (adjusted for inflation) having increased by 3.4 percent in 2018, according to the latest Census Bureau data.[7]  Unemployment is currently at 3.5 percent, a five-decade low, and 7 million new jobs have been created since November 2016.[8] Lawmakers should continue to promote policies to sustain the current economic recovery and put the nation on a fiscally sustainable path.

[1] https://fudge.house.gov/press-statements/congresswoman-fudge-and-congresswoman-moore-introduce-legislation-to-fight-poverty-and-honor-unpaid-work/

[2] https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income-tax-credit-income-limits-and-maximum-credit-amounts

[3] https://subscriber.politicopro.com/article/2019/12/eitc-benefits-eligibility-would-grow-under-moore-bill-1834399

[4] https://www.irs.gov/credits-deductions/individuals/earned-income-tax-credit/earned-income-tax-credit-income-limits-and-maximum-credit-amounts

[5] https://www.taxpolicycenter.org/publications/expanding-earned-income-tax-credit-economic-security-projects-cost-living-refund/full

[6] https://www.cbo.gov/system/files/2019-06/55347-MeansTested.pdf

[7] https://www.census.gov/content/dam/Census/library/publications/2019/demo/p60-266.pdf

[8] https://www.whitehouse.gov/articles/historic-u-s-job-market-continues-african-american-unemployment-rate-hits-new-low/