Saturday, August 25, 2012

In Defense of the Earned Income Tax Credit

As far as social welfare programs go, I've always liked the concept of gleaning.  In Old Testament Israel, Jews were required to leave the corners of their fields unharvested, allowing widows and orphans to gather food to survive.  There are no freeloaders; if one is willing to put in some work, their basic needs will be met.

Conservatives also emphasize encouraging people to work for their keep.  During discussions of social welfare, they worry that ours "is a future in which we will transform our social safety net into a hammock, which lulls able-bodied people into lives of complacency and dependency", as described by Paul Ryan.  Romney's campaign has spent millions attacking Obama with utterly false claims that Obama eliminated welfare-to-work rules, claiming "Under Obama’s plan, you wouldn’t have to work and wouldn’t have to train for a job. They just send you your welfare check."

Most can agree that it's reasonable to support enabling people to work hard to improve their lot in lives, particularly if those people are currently getting unemployment checks or welfare.  One seemingly obvious way to encourage poor people to work, even at low-paying jobs, is to subsidize working.  Since enacted by Gerald Ford and expanded by Ronald Reagan, the Earned Income Tax Credit has accomplished that goal by offering monetary incentives for people working low-paying jobs, particularly for people who have children.  It provides refundable tax credits of up to $5,666 for a worker with kids working full time for minimum wage, which works out to a pre-EITC income of $14,500.  That's a pretty substantial added incentive to get to work, even at a minimum wage job.

Before anyone derides the EITC as some sort of socialist scheme, it's worth mentioning that the EITC is more conservative than the negative income tax plan devised by libertarian economist Milton Friedman, in which there was no requirement to work to get the tax credit.

Although he wouldn't be caught dead admitting it, the EITC is likely in danger under a Romney administration.  Given the mathematical difficulties of his tax plan overall and factoring in the tax expenditures Romney's already put off-limits, the EITC, with its nearly-$60 billion price tag, is one of the few targets capable of offsetting a significant chunk of the revenue lost from Romney's rate reductions.

Imagine it's February 2013, and Romney is in the process of implementing his agenda.  The Congressional Budget Office announces the cost of his rate reductions, and Washington begins fighting over which tax deductions and credits will be axed to keep things revenue-neutral.  While the EITC boasts an impressive record of lifting around 6 million people out of poverty every year, the people who benefit directly from the EITC don't have quite the resources to hire K Street lobbyists as other beneficiaries of large tax expenditures, like oil companies and the Chamber of Commerce.  How likely is it that the EITC emerges from such a situation unscathed?


Chuck said...


You have to check your sources. It's not going to take all the way until February for Mitchel Romney to be in the midst of implementing his agenda. Everything goes into effect on day 1. Obamacare, repealed. BOOM! Done! Regulations, gone. SMASH! It's over! Economy, saved. ZAP! Anything that happens after day one is just some bull crap, mumbo jumbo, fluff piece that cannot be as important as everythingt hat happens on the first day.

Wade Roberts aka GWHunts said...

Totally agree with your assertion that the EITC won't survive a Romney/Ryan election. Romney's VP pick and private sector experience demonstrate his disdain for the working class. Ryan has already put forth plans that end both the EITC as well as the Child Care and Dependent Tax Credit. Tens of millions of wage earners depend upon the EITC, as do the "Main Street" small businesses that benefit from this annual "windfall" for the working class.

Wade Robertsaka GWHunta said...