EITC Expansion

A recent Democrat proposal, the Grow American Incomes Now Act of 2017 (H.R. 3757), would increase the maximum benefit and expand eligibility for the Earned Income Tax Credit (EITC)—a program in desperate need of reform. Already expanded several times since its 1975 enactment, the EITC provides refundable tax credits for low- and moderate-income households. Because the credit is refundable, if the amount of the credit which varies by family size and income exceeds federal income taxes owed, beneficiaries receive a check for the difference. Therefore, the EITC is mostly reflected as spending in the federal budget.

Expanding EITC Would Bust the Federal Budget. The Grow American Incomes Now Act of 2017 would lead to a drastic rise in federal spending by substantially increasing the maximum credit for families with three or more children from $6,431 to $12,131. H.R. 3757 would also increase the maximum credit for childless adults almost six-fold, rising from a benefit of $510 under current law to $3,000. Additionally, under this proposal, the EITC phaseout would be extended to higher income ranges than current law, raising EITC availability from households earning $55,000 to those earning $76,000. Finally, H.R. 3757 lowers the age of eligibility from 25 today to 21.[1] Ultimately, these EITC expansions would cost $1.4 trillion over ten years,[2] plus $258 billion of net interest costs for a total of $1.658 trillion over the same period. This new spending is in addition to $9.4 trillion of anti-poverty mandatory spending projected over the next decade.

Expanding EITC is Unworkable. There is no doubt that the EITC helps countless American families by providing support to working parents. However, the U.S. Government Accountability Office estimates an EITC improper payment rate of 24 percent for fiscal year 2017,[3] equating to $16 billion in program fraud and abuses. Further, even without expanding the EITC, the Federal Government has grown mandatory means-tested programs by 73 percent since 2008. Of this total, CBO projects refundable tax credits, the EITC being the most significant, will cost $80 billion in 2018. If implemented, the Grow American Incomes Now Act of 2017 would roughly triple the annual cost of the EITC to $210 billion and increase eligibility by 81 percent to 47 million people.[4]

Republican Solutions for Enhancing Wages. Fixing the EITC so that it works better for America’s families must come before increasing it. Without significant reform, adding 21 million people to a broken EITC program would be irresponsible. The Federal Government already spends hundreds of billions of dollars every year on anti-poverty mandatory programs. While these programs and the EITC are important, the key to improving middle-class wages is a strong, growing economy and a competitive labor market. By removing burdensome regulations and supporting pro-growth policies like tax reform, Republicans in Congress are achieving these goals and have built the strongest economy in decades. Unemployment is at 3.7 percent—the lowest level in almost 50 years. Median household income rose to $61,372 in 2017—up 10 percent from just three years ago.[5] And hourly wages are up 2.8 percent over the past year.[6] Government wage subsidies can complement a growing economy but enacting pro-growth policies that allow the free market to raise wages and grow a prosperous middle class will pay dividends that no federal program can achieve.


[1] https://khanna.house.gov/media/press-releases/release-sen-sherrod-brown-and-rep-ro-khanna-introduce-landmark-legislation.

[2] https://www.taxpolicycenter.org/taxvox/plan-radically-expand-earned-income-tax-credit.

[3] https://www.gao.gov/assets/680/677548.pdf

[4] https://www.cbpp.org/research/federal-tax/brown-khanna-proposal-to-expand-eitc-would-raise-incomes-of-47-million-working

[5] https://www.census.gov/content/dam/Census/library/publications/2018/demo/p60-263.pdf

[6] https://www.bls.gov/news.release/pdf/empsit.pdf


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