Republicans and Democrats don’t agree on much these days, but if there’s any point on which they should still see eye to eye it might be the federal earned-income tax credit. This cash supplement to wages, delivered in the form of a tax refund, was created during the Ford administration and has been gradually expanded under Republican and Democratic presidents. In 2012, it totaled $63 billion, paying an average of $2,300 to households containing 27 million people.
The EITC subsidizes low-income workers who make the effort to find a job and the employers who hire them without wasting benefits on middle-income teenagers and other non-poor workers, as the minimum wage does. Indeed, growth in this tax credit offset much of the minimum wage’s inflation-adjusted stagnation in recent years.
Many conservatives have cited the tax credit, correctly, as a more efficient, market-oriented approach to fighting poverty and inequality than the minimum wage, which Democrats have been seeking to raise.
So how come the new tax reform plan from the top Republican tax-law writer in Congress, House Ways and Means Committee Chairman Dave Camp, would reduce the credit by $48.2 billion between 2015 and 2018 and use the savings to help pay for a plan that lowers marginal tax rates, including for the well-off?
Camp’s proposal would reduce the current maximum EITC benefit, from $6,143 for a two-parent family with three or more children, to $4,000 for a two-parent family with two or more kids. And it would reduce the credit’s already inadequate coverage of childless single workers by cutting their maximum benefit from $487 to $100.
Camp’s plan quickly came under fire from Robert Greenstein of the liberal Center on Budget and Policy Priorities, who noted that it could cost a single parent with two children who works full time at the minimum wage about $350 in 2018 compared with current law.