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
Robert Doar, Morgridge
Fellow in Poverty
Studies, American
Enterprise Institute
Elaine Maag, Senior
Research Associate, Tax
Policy Center
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 Law
7.65%
Proposal
15.3%
Phases in up to
$6,570
$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
Phase-in rate
* 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 on Poverty
Impact of the Proposal: Who Benefits?
The 15 Most Common Occupations Among Workers
Benefiting from Proposed EITC Expansion
Workers
(Millions)
Cashiers
0.7
Retail salespersons
0.6
Waiters and waitresses
0.6
Cooks
0.6
Janitors and building cleaners
0.5
Laborers and freight, stock, and material
0.4
movers
Stock clerks and order filers
0.3
0.3
Nursing, psychiatric, and home health aides
Maids and housekeeping cleaners
0.3
Personal and home health care aides
0.3
Ground maintenance workers
0.3
Construction laborers
0.3
Truck drivers
0.3
Child care workers
0.2
Food preparation workers
0.2
Source: CEA calculations from Current Population Survey
Workers Benefiting from Childless Worker
Expansion (Millions)
Total
ALL
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
1.3
Source: CEA calculations from Current
Population Survey data
 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
Moderated Discussion
Who will benefit?
Real Federal Spending on the
EITC, CTC, SNAP, and Welfare
90
80
Real Federal Spending on EITC, CTC, SNAP and Welfare
70
Billions of 2011 Dollars
60
CTC
50
EITC
40
30
Food Stamps/SNAP
20
10
AFDC/TANF
0
1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
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 Labor Statistics.
For CTC and EITC, we convert tax year data to fiscal year data by applying a 20-80 split.
Tax Entry Threshold –
Before and After Tax Credits, 2014
$60,000
$40,000
$20,000
$0
Poverty
Tax Entry Before
Credits
Tax Entry After
Credits
FY15 Budget
Assumes all income comes from earnings; children
qualify for CTC and EITC and no other credits.
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
http://bit.ly/expandingEITC
http://www.taxcreditsforworkingfamilies.org/blog
Tax Credits for Working Families
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Debbie Stein and Lauren Pescatore
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www.taxcreditsforworkingfamilies.org
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