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5:21 am
Tue April 8, 2014

Earned Income Tax Credit Helps Lift Workers Out Of Poverty

Originally published on Tue April 8, 2014 8:09 am

Transcript

DAVID GREENE, HOST:

It is that time of year, millions of Americans are scrambling to file their tax returns before April 15th. Some owe money. Some who had too much withheld from paychecks will get refunds. And some workers will actually get money from the government. Not a refund - hard cash, in the form of the Earned Income Tax Credit - one of the government's major anti-poverty programs. You might have heard about it. You might even qualify for it.

To explain how it works, we turn to David Wessel. He's director of the Hutchins Center at the Brookings Institution and a contributor to The Wall Street Journal. Good morning, David.

DAVID WESSEL: Good morning.

GREENE: So how does the Earned Income Tax Credit exactly works?

WESSEL: The Earned Income Tax Credit - the EITC - it's called, is essentially a cash bonus that the government gives eligible low-wage workers - a little something on top of their wages. For some, it just offsets the taxes they pay income and payroll taxes but for many, it's actually extra money. The White House Council of Economic Advisers estimates that more - it lifts more Americans out of poverty every year than any program, except Social Security. It's $75 billion a year, 28 million families, and have the states had their own on top of it.

One study of tax records from 1989 to 2006, found that over half the taxpayers with children benefited from the EITC at some point over those 19 years, so though, I suspect a lot of them didn't realize it.

GREENE: That's a lot of years of research. This has been around for a while.

WESSEL: Yeah. It was actually created back in 1975, when Richard Nixon was the president. It's been expanded several times since, in both Republican and Democratic administrations. It's very appealing to politicians because it goes to people who work, so it's different than what we once called welfare, which is sometimes derided by politicians, and so far, it mainly goes to families with children. The average is about $3,000 a family. It can be as much as 6,000 for larger families. And a lot of people, from Barack Obama, to Republicans, Marco Rubio and Paul Ryan, want to expand it for childless workers now only can get up to $500 a year.

GREENE: I'm hearing names. You mentioned there, some prominent Democrats, prominent Republicans. It sounds like there's pretty much universal support for this?

WESSEL: Well, there's bipartisan support. I wouldn't say it's universal. Some Republicans are concerned that it's so generous that there's families who make $50,000 a year, which is kind of like the middle class who qualify. Others complained that there is a lot of fraud in the program. Although, the defenders say a good part of the alleged fraud are basically mistakes because Congress has made of thing so complicated, particularly for families where the kids don't live with the same parent all year. And so - but generally, it's applauded by both parties precisely because it rewards work.

GREENE: Well, does this tax credit in a way - if it's for low-wage workers, you know, offer some kind of alternative to raising the minimum wage, which is something that has been hotly contested in Washington?

WESSEL: Well, that's a good question, David. So there are some Republicans and some conservative economists who say it is. It gets money into the pockets of low-wage workers without making them unattractive to employers, so it gives them more income but doesn't cut the amount of employment in the economy, doesn't kill jobs. But, of course, the money has to come from somewhere - in this case, the taxpayers and raising the minimum wage would come out of employer pockets, not taxpayers. So the White House and many Democrats basically say, let's do both, let's sweeten the EITC, let's raise the minimum wage rather than relying on one or the other. But it's far from clear that Congress is going to do either one

GREENE: All right. As we approach tax day, that's David Wessel, director of the Hutchins Center at the Brookings Institution and contributor to The Wall Street Journal. David, always good to have you on the program.

WESSEL: You're welcome. Transcript provided by NPR, Copyright NPR.