Expanding the EITC: The President's Proposal Wednesday, March 5, 2014 Tax 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-Dine Associate Director for Economic Policy Office of Management and Budget March 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

Context for the Proposal: Federal Taxes and Poverty

Context for the Proposal: Labor Market Trends

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 1.Double maximum credit 2.Raise income level at which credit is phased out to ~$18,000 3.Lower age limit to 21 Also raises upper age limit to harmonize with Social Security full retirement age Current Law and Proposed Childless Worker EITC Parameters Current LawProposal Phase-in rate 7.65%15.3% Phases in up to $6,570 Maximum credit $503$1,005 Phase-out rate 7.65%15.3% Phase-out starts* $8,220$11,500 Phase-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 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 on Poverty

Impact of the Proposal: Who Benefits? Workers Benefiting from Childless Worker Expansion (Millions) Total ALL 13.5 LESS THAN AGE AGE 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 1.3 Source: CEA calculations from Current Population Survey data The 15 Most Common Occupations Among Workers Benefiting from Proposed EITC Expansion Workers (Millions) Cashiers0.7 Retail salespersons0.6 Waiters and waitresses0.6 Cooks0.6 Janitors and building cleaners0.5 Laborers and freight, stock, and material movers 0.4 Stock clerks and order filers0.3 Nursing, psychiatric, and home health aides 0.3 Maids and housekeeping cleaners0.3 Personal and home health care aides0.3 Ground maintenance workers0.3 Construction laborers0.3 Truck drivers0.3 Child care workers0.2 Food preparation workers0.2 Source: 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 CHANGE0 Note: Totals do not add due to rounding. For additional information about the proposal and estimates of its impact:

Moderated Discussion Who will benefit?

Real Federal Spending on the EITC, CTC, SNAP, and Welfare

Tax Entry Threshold – Before and After Tax Credits, 2014

Moderated Discussion How will this work in practice?

Moderated Discussion What comes next?

States with EITCs

Questions? Please type your questions in the Q and A box

Developments

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