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The Problem with the EITC

The Huffington Post • April 17, 2007

It’s common knowledge that tax day inspires a nationwide grumble, but it’s beginning to be known for bringing annual cheers from the country’s working poor. In recent years, the Earned Income Tax Credit–a stealth antipoverty program with broad bipartisan support–has become one of the country’s most successful efforts to help the poor: Last tax year, the EITC put $41.4 billion into the pockets of workers who earn too little to get by, more than we ever spent on welfare. That work-first hook has made the program a bipartisan favorite, but a closer look suggests that the EITC isn’t the panacea its often touted to be.

First, a booming EITC suggests that much of the lauded drop in the welfare rolls hasn’t been sufficient to move people out of poverty. While low-income workers claimed that $41 billion in 2005, they also often got help from Medicaid, food stamps, and other “work support” programs. In 2002 (the most recent year for which numbers were handy), our social spending on those programs had shot up to $131 billion–while welfare went down to under $10 billion. Even during welfare’s all-time highs in the mid-1990s, we were only spending $23.5 billion on checks to the poor.

The rising prominents of EITC’s also suggests a disturbing story: An increasing federal indifference to low wages, with the state essentially handing employers a free pass. Today, about one-third of Americans held low-wage jobs–note that researchers use $9.83/hour as the poverty line, well above the proposed increase to the minimum wage–many of them without health benefits. (The folks over at Inclusion have an excellent report on this.)

The EITC has unquestionably been a boon to low-income workers; but even the Congressional Budget Office has found it to be far stingier than higher wages. Poor workers earning between $5.15 and $7.24 in 2004 would have earned $11 billion more if they’d gotten a boost up to $7.25. Compare that to the impact of a proposed expansion of the EITC, which would have doled out just $2.4 billion more to poor workers.

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