Debt reduction plan helps childless workers(Read article summary)
Debt reduction plan would allow federal aid to flow to low-income families without children.
J. Scott Applewhite/AP/File
The debt reduction and tax reform plan proposed this week by the Bipartisan Policy Center does more than cut the deficit. The task force, chaired by former GOP Senate Budget Committee Chair Pete Domenici and former top congressional and White House budget official Alice Rivlin, also deals workers who have no kids at home a better hand by extending the EITC to more of them. The EITC is the nation’s largest cash-transfer program targeted at low-income working families, rivaling the Supplemental Nutrition Assistance Program (SNAP – or Food Stamps) in total benefits. EITC payments rise with income, plateau, and then decline as earnings surpass a set amount. In 2010, the maximum credit ranges from $457 for families without children living at home to $5,666 for families with three or more kids.
The EITC gets flack for offering almost nothing for low-income workers without children at home. Left out in the cold are some people who don’t have children, some whose children are older, and some whose children live elsewhere (say, with a divorced parent). Another complaint is that the credit penalizes marriage: two low earners who marry stand to lose the EITC. A single parent earning $16,000, for instance, can receive between $3,050 and $5,666, depending on how many children she has. But if she marries someone making about the same, the couple gets no EITC because their combined income is too high to qualify.
BPC’s worker credit answers both of these criticisms. For starters, the credit doesn’t hang on the number of children under the worker’s roof. All workers receive a 21.3 percent credit on the first $20,300 of earnings up to a maximum of $4,324. And in two-worker households, both partners get the credit. Thus, a married couple with no children and $40,600 of earnings split equally between them gets a $8,648 subsidy under the BPC plan. Right now, that same couple gets no EITC but qualifies for a $800 Making Work Pay credit, though that temporary subsidy (part of the American Recovery and Reinvestment Act) expires in January.
This dramatic proposed change largely explains why the bottom fifth of earners would face almost no tax increase under the BPC’s deficit- reduction plan. By Tax Policy Center estimates, members of this group would pay an average of $5 more in 2022—relative to current policy assuming the Making Work Pay credit and lower refundability thresholds for the CTC had already ended. Families with children would pay higher taxes, but the BPC proposal creates a substantial work incentive for families without children – something many policy analysts have long been calling for.
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