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OCR Page 1 of 84CENTER ON BUDGET
AND POLICY PRIORITIES
820 First Street, NE, Suite 510, Washington, DC 20002
Ph: 202-408-1080, Fax: 202-408-1056
EITC
http://www.cbpp.org
June 22, 2000
Should the EITC for Workers Without Children
Be Abolished, Maintained, or Expanded?
by Robert Greenstein
Alongside the substantial Earned Income Tax Credit
to enlarge it. These workers face high federal tax
for low-income working families with children is a small
burdens. They also are ineligible for most forms of
EITC for workers between the ages of 25 and 64 who
government assistance despite the fact that a large
are not raising minor children. The EITC for families
majority of them live in poverty. If any group of
that do have children provides an average credit of more
workers needs a tax cut, it is this group. In addition,
than $1,900 and covers families with incomes up to
these workers might be induced to work more by a
$27,400 or $31,200, depending on the number of
somewhat more substantial EITC.
children in the family. By contrast, the EITC for
workers without children provides an average credit of
Background
approximately $200 and ends when income reaches
$10,400.
The EITC for childless workers is a tax credit for
poor workers between the ages of 25 and 64 who do not
Some 98 percent of overall EITC benefits goes to
live with minor children. In 2000, the EITC for which
families with children, with two percent going to
these workers can qualify equals 7.65 percent of their
working individuals and married couples who are not
first $4,610 in earnings, resulting in a maximum credit
raising minor children. The cost of this small EITC for
of $353. The credit begins to phase out at a 7.65 percent
workers without children amounts to about $700 million
rate once a worker's income surpasses $5,770. The
a year.
credit falls to zero when income reaches $10,380.
On several occasions in recent years - and
In tax year 1998, some 3.3 million filers received
particularly in 1995 and 1996 - proposals to abolish
this EITC. The average credit they received was $212.
this credit have emerged. Such proposals were advanced
in the mid-1990s as a way to help eliminate the budget
This modest EITC was established for these
deficit, while also making room for various tax cuts.
workers in 1993, in part because their federal tax
More recently, elimination of this credit has been
burdens had escalated sharply since 1980 as a result of
suggested on a few occasions as an offset to help finance
a series of regressive payroll and excise tax increases
tax cuts or entitlement expansions, although no
and in part because the 1993 budget package contained
legislation to this effect has been moved.
a further tax increase of this nature. A Congressional
Since this small credit is never larger than the
Budget Office analysis found that between 1980 and
employee share of the payroll tax - it offsets this
1993, the average federal tax burden of the poorest fifth
payroll tax for only the first $4,600 in earnings -
ofnon-elderly households climbed 38 percent, dwarfing
abolishing it would leave the overall tax burdens of
the increase in tax burdens borne during this period by
these workers higher. In other words, it would raise
any other group of households in any income category
their taxes. As explained below, this group of low-
(see Table 2). By 1993, the percentage of income that
income workers already pays a surprisingly high
the poorest fifth of non-elderly households without
percentage of its income in federal taxes. More than
children was paying in federal taxes was double the
three million of the nation's poor workers would be
percentage of income that the poorest fifth of families
adversely affected by elimination of this credit. Many of
with children paid and more than five times the
them would be pushed deeper into poverty.
percentage that the poorest fifth of elderly households
paid.
Rather than abolishing this part of the EITC, or
maintaining it in its current form, Congress may wish
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