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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
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: 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
Real Federal Spending on the EITC, CTC, SNAP, and Welfare
19751976
19771978
19791980
19811982
19831984
19851986
19871988
19891990
19911992
19931994
19951996
19971998
19992000
20012002
20032004
20052006
20072008
20092010
20110
10
20
30
40
50
60
70
80
90
AFDC/TANF
Bill
ions
of
2011
Dol
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.
Developments
http://bit.ly/expandingEITC
http://www.taxcreditsforworkingfamilies.org/blog
Tax Credits for Working FamiliesManaged by The Hatcher Group
Debbie Stein and Lauren [email protected]
www.taxcreditsforworkingfamilies.org(301) 656-0348
Follow us on Twitter @TaxCreditsWF