Reimagining the EITC: Creating Economic Security for All

by Aisha Nyandoro

The EITC is a refundable tax credit that supplements the earnings of low-income workers. Governed through the Internal Revenue Service (IRS), the EITC resembles other tax refunds in administration and public perception; in substance, however, more like other social welfare programs such as Supplemental Nutrition Assistance Program (SNAP) and Temporary Assistance for Needy Families (TANF). Families with children are eligible to receive the most sizable benefits from the EITC, while workers without children can receive modest EITC benefits. To qualify, families must have earned some money working during the tax year. In 2017 the average EITC return was $2,455. Despite strong bipartisan support and being touted as “one of the most impactful programs for low-wage workers”, the benefits of EITC are not recognized by all that are eligible. In fact, only one in five eligible workers take advantage of the one-time lump sum payment. EITC provides a large windfall to families only once per year, during tax refund season. However, low-income families are particularly vulnerable to adverse financial situations and economic instability year round.

There are several policy steps that can be taken to reform the EITC so that the tool works for vulnerable families within our society, particularly families that fall within the extremely low-income range (living 200% below the poverty index). These families comprise the working poor within our country, and EITC reform could provide the balm to disrupt their vulnerable situations and help create opportunities for upward mobility.

Providing families with an opportunity to elect to receive their EITC refund as monthly payments throughout the year would yield additional monthly income. This extra couple of hundred dollars could be used for a plethora of items. For families where each month is spent just scraping by, supplemental monthly resources could be life changing and prevent them from falling victim to predatory leaders.

As currently implemented, EITC is an opt-in option on the tax return. The issue with this is that many low- and extremely low-income families do not use reputable tax preparers-opting to use payday lenders and other questionable preparers because refunds are processed on site. As a result, those who would benefit most are largely unaware that the economic tool of the EITC exists. Should filers be required to opt-out of EITC, persons that qualify would automatically be enrolled to receive the benefit.

Finally, the current iteration of EITC is available only to workers over the age of 25. This policy does not align to the economic reality of many extremely low-income families which have young adult children (over the age of 18) living at home and working to help support the family. The income of these young adults are taken into consideration when determining all other eligible benefits, for example rent subsidy, SNAP benefits etc. Yet, they are not qualified to receive the benefit of EITC; how is this equitable? In short, slight policy shifts in the eligibility and implementation of EITC can create long-term impact and is a step toward ending generational poverty.

This is the fourth piece in a series of pitches written for the Economic Security Project’s first design workshop on basic income held last spring. We are sharing these pieces in the lead up to the Economic Security Project’s first ever Cash Conference on Thursday October 19th in San Francisco. RSVP to attend here.