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Breaking: Obama to propose expanding EITC and child tax credit in budget

(Photo by Larry Downing/AP)

Updated to reflect details of the president's proposal

President Obama’s budget to be released on Tuesday will propose expanding the earned-income-tax-credit and the child-tax-credit, a pair of tax policies targeting low-income and middle-income Americans that the White House hopes could appeal to Republicans who also support the policies.

Obama will propose expanding the EITC to benefit the roughly 13.5 million workers who don’t have children. While low-income workers without children are eligible for the tax credit – a kind of cash bonus – it is far more generous for workers with children. According to the Center on Budget Policy and Priorities, childless workers receive an average credit of $270, compared to $2,790 for workers with children. In addition, childless workers under 25 are ineligible.

Under the new proposal, workers would get 15.3 cents back on every dollar they earn up to $6,570, for a maximum of $1,005. Then the tax credit is frozen until the worker earns $11,500. The phase out ends at $18,070.

Workers (though not students) would also be eligible at age 21. Here are the changes as summarized by the Council of Economic Advisers:

Many Republicans and independent economists like the EITC because it creates incentives to work. The benefit grows as one’s income rises, encouraging work. Then it only phases out after one’s income has increased substantially. The EITC, thus, lacks many of the disadvantages that other safety net polices have.

Republicans like Rep. Paul Ryan (Wis.) have supported the EITC  for that reason. The White House estimates that a half million people would be brought above the poverty line as a result of the change.

Obama will also propose in his budget an expansion of the child tax credit, which allows parents to deduct the child and dependent care-related costs from their taxes. The White House estimates that 1.7 million families would benefit, receiving a tax cut of more than $600.

Administration officials said they would cover the $60 billion cost of the proposals by closing tax loopholes that benefit the wealthy, including the ‘carried interest’ provision that benefits hedge-fund managers and a loophole that permits self-employed professionals to avoid payroll taxes on the bulk of their earnings.