A Tax Bonus for Black and Latino Men?

By Miriam Zoila Pu00e9rez Oct 29, 2014

What if I told you that there is a policy change that is pretty much guaranteed to help low-income people of color struggling to get out of poverty, and that it has Democratic and Republican support even in today’s super-polarized Congress? Sound too good to be true? Well that’s what the Earned Income Tax Credit (EITC) expansion is. If we set aside the question of how to fund it, expansion has wide bipartisan backing, from Rep. Paul Ryan (R-Wis.) to President Barack Obama. 

The EITC is a decades-old tax policy that essentially helps low-wage people who meet certain age and income requirements keep more of the money that they earn. Because it’s a tax credit, EITC recipients can get back more money than they owed in taxes–almost like a bonus for being a low-wage worker. The EITC, which arrives as a lump sum, has been shown to help the low-income people who qualify for it significantly. For example, the EITC brought 6.5 million peoples’ take-home pay above the poverty line in 2012. Often called a policy that "makes work pay," the EITC can mean the difference between working a full-time, minimum-wage job and still not making enough to survive.

The Center for American Progress (CAP) and its youth-focused offshoot, Generation Progress, recently released proposals arguing for the expansion of the EITC.

A major element of both proposals is raising the credit amount for childless workers. As Imara Jones reported last week, a childless person working full time and earning minimum wage is eligible only for up to $25 a year in EITC help. Raising the credit for childless workers could have a significant effect on black and Latino men, who are disproportionately likely to be working low-wage jobs without receiving much assistance from the EITC. Expansion would also help men who have kids but aren’t the custodial parent to qualify for the credit.

As it stands now, childless workers must be at least 25 to access the EITC. Generation Progress and CAP both advocate for lowering the eligibility age to 18. (President Obama’s plan would lower the age to 21.) The minimum age was originally designed to prevent college students–who are assumed to have parents who support them financially and claim them as dependents on their taxes–from receiving EITC funds. But both CAP and Generation Progress point out that the reasoning is outdated; the IRS today has the ability to determine the dependent status of students. Decreasing the minimum eligibility age would also mean that many of those who don’t go to college–the majority of EITC recipients–don’t have to work full-time for seven years before receiving the benefits. Generation Progress also argues that students who are low-income and without parent support should still benefit from the EITC.

Another group that stands to benefit from expansion is LGBT workers, who tend to have children at a later age than their non-LGBT counterparts. Almost half of non-LGBT people have a child before age 25. According to Generation Progress, "this means that childless LGBT [workers] ages 18 to 24, who experience high rates of poverty, miss out on one of the federal government’s largest anti-poverty programs,"

CAP has an interesting idea about allowing EITC recipients to access a portion of their credit before tax time as a way to offset the use of predatory lending programs.  Blacks and Latinos are more likely to use services such as payday loans when facing an emergency. According to a CAP report, 49 percent of Americans ages 18 to 34 would not be able to come up with $2,000 in 30 days. For African-Americans, it’s 50 percent; for Latinos it’s 47.  

While Republicans and Democrats alike support some level of EITC expansion there are two major points of difference. The first is how the expansion should be funded. Democratic proposals, including President Obama’s, offset the costs by closing tax loopholes for corporations and high-earning individuals such as hedge-fund managers. Republican proposals, like those from Florida Sen. Marco Rubio and Ryan, pay for the expansion by making cuts to other government programs such as the Fresh Fruit and Vegetable Program.

A second point of disagreement is about the relationship between the EITC and the minimum wage. While some conservatives argue that the tax credit is an adequate substitute for minimum-wage regulations, progressives, including CAP and Generation Progress, argue that EITC expansion needs to be coupled with minimum-wage increases. 

If the predictions that Republicans will gain control of the Senate after next week’s midterm elections pan out, President Obama may find himself faced with a tough decision: whether he should veto an EITC expansion funded by making cuts to other anti-poverty programs. Economic policies that work to the extent that the EITC does are unusual, and it’s likely that both parties will want to extend this benefits to low-income workers in advance of the 2016 presidential election. At what cost remains to be seen, and will likely be just another move in the game of partisan chess.