11/25/10

Reforming the EITC

When I answered phones for the IRS (about four years ago!), I dealt with a lot of questions about the Earned Income Tax Credit. This was mostly due to state social service agencies posting flyers and sending various mailings stating that "you might be eligible for $4000 from the government if you work and have children" and then posting our 800 number. The EITC, along with the Additional Child Tax credit, was one of those refundable credits that's supposed to act as need-based assistance for families with children, but to my experience at least, always seemed to function as short-term windfalls. I spoke to a lot of people who were going to use the money to get new TVs. In any case, the Bipartisan Policy Center's plan for tax reform wants to change how the credit works:
BPC’s worker credit answers both of these criticisms. For starters, the credit doesn’t hang on the number of children under the worker’s roof. All workers receive a 21.3 percent credit on the first $20,300 of earnings up to a maximum of $4,324. And in two-worker households, both partners get the credit. Thus, a married couple with no children and $40,600 of earnings split equally between them gets a $8,648 subsidy under the BPC plan. Right now, that same couple gets no EITC but qualifies for a $800 Making Work Pay credit, though that temporary subsidy (part of the American Recovery and Reinvestment Act) expires in January.
This change would mainly shift benefits to childless workers- like high school kids with summer jobs. I'm generally opposed to social welfare being distributed through the tax code, mostly because it creates a lot of confusion about who pays what in taxes and what it all means, but also because of the companies willing to prey on taxpayers' ignorance. 
I heard from too many people rushing off to tax preparers on January 1 to file their returns just to get this huge windfall and to make sure that "someone else doesn't claim my babies" who were willing to take a short-term loan (at a percentage of their total credit, of course). It's gross and stupid and I wish that the IRS wasn't complicit in it.

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