Experts Discuss Reforms to Improve the Earned Income Tax Credit
Tax season is upon us, and for low- to middle-income families, there may be some good news. The earned income tax credit (EITC) could potentially put money back into their pockets. The EITC is a refundable credit, meaning that eligible workers receive a refund if the value of the credit exceeds their federal taxes owed. Families with children and incomes below a certain threshold may qualify for the EITC this tax season, depending on their marital status and the number of children in their households.
However, experts believe that the EITC could be reformed to be more efficient and beneficial to workers and their families. At a panel hosted by the Bipartisan Policy Center, industry leaders discussed potential improvements to the credit. JPMorgan Chase CEO Jamie Dimon expressed his support for increasing spending on the EITC, suggesting that it would provide more money to households and communities. Dimon even proposed taxing the wealthy slightly more to fund this initiative. He emphasized that investing in the EITC would not only provide financial support but also bring dignity to low- to middle-income families.
To boost the EITC, one possible solution is to eliminate the state and local tax deduction, which allows taxpayers to deduct up to $10,000 for certain taxes paid to state and local governments. Paul Ryan, former Speaker of the House and Republican representative for Wisconsin, supported this idea, stating that there are numerous unnecessary tax breaks that should be reconsidered.
The EITC was initially enacted in 1975 to combat stagflation, a combination of slow economic growth and high inflation that plagued the U.S. economy at the time. Today, in addition to the federal tax break, 31 states and Washington, D.C. offer a state version of the earned income tax credit to further supplement wages. However, there are opportunities for improvement. For example, expanding eligibility for childless workers could be a significant change, as it was temporarily implemented in 2021 in response to the Covid-19 pandemic. Additionally, adjusting the credit to include both younger and older workers could be beneficial.
Surprisingly, approximately 1 in 5 eligible workers fail to claim the federal earned income tax credit, according to the Bipartisan Policy Center. This could be due to the credit’s complex eligibility rules and lack of awareness. To address this issue, experts suggest improving the technology used to administer the credit. By having a more efficient system, the credit could be embedded in workers’ paychecks rather than being received as a lump sum during tax filing. This would provide workers with a consistent increase in their pay, allowing them to budget more effectively.
Moreover, enhanced technology could help reach eligible workers who are currently not receiving the EITC and make it easier to modify eligibility criteria. With several expiring provisions in tax law approaching, there is an opportunity to make expansions and improvements to the EITC during the next session of Congress.
In conclusion, experts agree that the earned income tax credit has the potential to uplift society and provide much-needed support to low- to middle-income families. By making reforms such as increasing spending, eliminating unnecessary tax breaks, expanding eligibility, and improving technology, the EITC can become a more efficient and effective tool for combating economic inequality. It is crucial for policymakers to consider these recommendations and work towards creating a fairer and more inclusive tax system that benefits all Americans.
