Opinion: The wrong way to fight poverty – By Ryan Cooper (The Week) / May 19 2020
What is to be done about poverty? For decades, the Democratic Party has advocated a strategy of refundable tax credits — “refundable” meaning that if one has no federal income tax liability, then the credit will be added to your income. (It’s a silly way to obscure what is essentially a welfare program.) The most important one of these is the Earned Income Tax Credit (EITC), which pays extra income to low-income workers depending on their family structure. Expanding the EITC in various ways has been a popular policy plank for the party’s leaders and presidential candidates, including Joe Biden this year.
There’s just one problem: As Matt Bruenig writes in a clever new analysis for the People’s Policy Project, the EITC is a policy trash fire. It does not help the poor nearly as much as conventional wisdom holds, which wasn’t that much in the first place. Democrats really need to get over their fixation on this kind of policy, and embrace the social-democratic welfare state.
Here’s how the EITC works. If you make a small amount of labor income during the year, it will add to that income depending on the characteristics of your household and how much money you make. For a family with two children in 2018, for instance, it added 40 cents to every dollar earned (or “phased in”) up to $14,290 in income, providing a maximum credit of $5,716. But if that family made more than $18,600, the credit would be reduced (or “phased out”) with each additional dollar of income, so that if they made more than $45,802, they got nothing. If you are single, or have one child, or three children, the thresholds are different in each case.
That’s all very complicated, but the basic idea is fairly simple. The government adds to poor people’s labor income up to a plateau, then slowly backs off the assistance again for people making more money. If you plot the EITC on a chart, it shows a series of trapezoids for each household category, which is why many have taken to using that shape as a name for this style of policy.
Democrats are smitten with trapezoids. The EITC itself was seriously boosted during the Clinton administration. During her presidential campaign, Hillary Clinton proposed making the Child Tax Credit into an EITC-style trapezoid. Rep. Ro Khanna and Senator Sherrod Brown proposed a major expansion of the EITC in 2017. Senator Kamala Harris’ (D-Calif.) LIFT Act is also essentially a beefed-up EITC. Joe Biden’s campaign platform would allow single workers over 65 (who are currently excluded) to claim the credit.
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