On Tuesday, Obama proposed expanding the earned-income tax credit (EITC), which tops up the wages of working Americans hovering around the poverty line. Because this policy mitigates the misery of some 27 million low-income Americans while dignifying and rewarding work, economists left and right like it. Conservative experts often argue that boosting the EITC would be significantly better than raising the minimum wage, which they say depresses hiring.
So, Obama is saying, let’s do it. Relative to the amounts that poor parents get, the EITC jilts adults without dependents — even if they have children others claim as dependents. Workers under 25 get nothing at all. The president’s new budget plan would increase the benefit to dependent-less adults and lower the age floor on eligibility, helping 13.5 million people.
New York Magazine’s Jonathan Chait argues that Obama has called Republicans’ bluff on the EITC: If they really mean what they say about their desire to help the poor, they will now seek to expand the EITC; if they just praise the EITC in order to attack raising the minimum wage, they won’t.
But that’s not quite right, because Republicans are concerned about another problem with the policy. My colleague Chuck Lane points out that the EITC’s complex eligibility criteria discourage needy people from claiming it and encourage abuse, with billions regularly overpaid. Last week, House Ways and Means Committee Chairman Dave Camp (R-Mich.) proposed a reform that would make the EITC easier to administer, combating fraud. Camp, though, would also significantly cut the size of the benefit’s payouts.
The potential deal, then, is obvious: Combine EITC expansion with reform. Make sure the right people are getting the benefit, then give them more for their work. Lane stresses that Camp’s reform could save significant amounts of money. Policymakers could drive that back into the EITC program and find more from elsewhere if necessary — Chait suggests Democrats offer chained CPI, a reform to Social Security, though that would complicate the deal-making — to fund a particularly worthy policy. Unlike a lot of compromises in Washington, a competently designed expansion-reform bargain would result in better policy.
Office of Management and Budget Director Sylvia Mathews Burwell on Tuesday told Post editorial writers that, given Republican interest in the EITC, “something could happen.” The president should directly approach GOP leaders with an openness to reform as well as expansion. At that point, Republicans would have even less excuse to do nothing.