Tax Reform Should Expand Anti-Poverty Credit
With federal tax reform efforts in full swing, we have a once-in-a-generation opportunity to lift low-wage childless workers out of poverty by expanding the Earned Income Tax Credit (EITC) to 7.5 million young adults across the U.S.
The tax bill passed by the House remains silent on expanding the EITC, despite it traditionally having broad support on both sides of the aisle. While House Speaker Paul Ryan and former President Barack Obama have both previously called for an expansion of this credit for younger workers, the current tax reform effort misses a significant opportunity boost the EITC for millions of Americans.
This tax credit — which results in a tax refund — helps offset federal payroll and income taxes, allowing hardworking Americans to keep more of what they earn for essentials like transportation, groceries and childcare. In 2016 in California, the EITC returned $7.3 billion to the pockets of our working families.
While millions continue to benefit from this tax credit each year, the EITC largely excludes younger workers and those who can’t claim children on their taxes. This includes noncustodial parents who still contribute to child expenses, veterans returning home to find stable ground and young workers trying to carve out a foothold in the workforce.
Currently, the maximum credit for a worker without children is $510, available only when they earn between $6,670 and $8,340 annually. Once those earnings exceed $8,340, the credit begins phasing out and disappears completely when their wages exceed $15,010.
Such a small credit is not enough to offset their tax burden and does little to help them out of poverty. Since they are unable to claim the Child Tax Credit, they are essentially excluded from two of the government’s most powerful anti-poverty resources.
Our tax policy should help workers advance, not leave them behind. As part of tax reform legislation, we need to expand the EITC to include workers not raising children and those aged 21-24.
Doing so would help almost 1.5 million low-wage men and women in California put food on the table, pay for transportation to work and meet other basic needs.
This would also enable workers to contribute more to our local economy because when people keep more of what they earn, they can purchase more of life’s necessities at local businesses.
Sen. Sherrod Brown, D-Ohio, and Rep. Ro Khanna, D-Santa Clara, have introduced the Grow American Incomes Now (GAIN) Act, which aims to increase the credit for childless workers to an amount closer to that for families with children, while also lowering the qualifying age for the EITC from 25 years old to 21 years old. The GAIN Act roughly doubles the EITC for working families and increases the credit for childless workers almost six-fold. This legislation would augment the direct work incentive, help counter poverty among the working poor and assist growth in both our middle class and economy.
We both remain committed to connecting more of the Bay Area’s workers with the EITC, so they can achieve financial stability and break the cycle of poverty. Now that Congress is seriously considering a tax overhaul, we have the perfect opportunity to come together and ensure our tax code works for all hard-working Americans.
Ro Khanna represents California’s 17th Congressional District. Anne Wilson is chief executive officer of United Way Bay Area.