Last year, more than 27 million American taxpayers received refunds through the Earned Income Tax Credit (EITC) from the IRS worth a total of $67 billion.
It’s widely considered one of the most successful anti-poverty initiatives in the country, lifting 6.2 million people out of poverty. To qualify, a recipient has to have “earned income” during the year and is credited with encouraging and rewarding work.
But while the credit can be worth as much as $6,242 for a single parent with three kids, it’s worth very little to those without children.
“In the United States, we are mostly focused on poverty as a child problem,” said Gordon Berlin of MDRC, a social policy research organization. “It has been very hard to build support for working poor who don’t have dependent children.”
Expanding the EITC for childless workers has been a popular bipartisan idea, supported by both Speaker of the House Paul Ryan as well as President Barack Obama. But while an expansion of this credit in the federal tax code has not become a reality, in New York a pilot project is underway to test exactly what effect an expanded EITC would have on low-income, childless workers.
Researchers are following about 3,000 New Yorkers who are getting a “Paycheck Plus bonus” of up to $2,000 dollars each year, supplementing the small existing EITC available for childless workers. Researchers will also be tracking a control group that is not receiving the bonus to test exactly what effect the extra money has.
Chasing the Dream: Poverty and Opportunity in America is a multi-platform public media initiative that provides a deeper understanding of the impact of poverty on American society. Major funding for this initiative is provided by The JPB Foundation. Additional funding is provided by Ford Foundation.
Read the full transcript of this segment below:
KARLA MURTHY: Donna Soogrim works full-time as a prep cook for a Manhattan catering company and earned 22,000 dollars last year.
DONNA SOOGRIM: It’s hard, it’s hard. Especially in New York.
KARLA MURTHY: She started filling out her tax forms in January with the help of a non-profit organization that offers free assistance to low-income people.
There’s a big reason she’s aiming to file early. As the single mother of a 10-year-old girl, Soogrim anticipates a nearly $8,000 tax refund this year. A big part of that is from the federal Earned Income Tax Credit, or EITC.
KARLA MURTHY: And what do you plan on doing with that money?
DONNA SOOGRIM: She’s going to summer camp. So it was just for summer camp — that’s about $3,000. And then for her daycare expenses.
KARLA MURTHY: so that money really makes a difference?
DONNA SOOGRIM: Yes, it does.
KARLA MURTHY: But the EITC doesn’t help all low-income earners. It primarily benefits adults with children.
So Carmelo Nieves is left out. He made about $20,000 last year working part-time as an aide for disabled adults.
CARMELO NIEVES: It benefits the single parents with the kids. And I’m not against that. I’m not against that. But you’ve got to show some fairness in the sense of, alright, we got single adults that are working just as hard as them.
KARLA MURTHY: Gordon Berlin is trying to help people like Nieves. He’s president of MDRC, a New York nonprofit group focused on improving policies and programs for the poor.
GORDON BERLIN: In the United States, we are mostly focused on poverty as a child problem. It’s been very hard to build support for working poor who don’t have dependent children.
KARLA MURTHY: Berlin is an advocate for expanding the EITC to low-income workers without children.
GORDON BERLIN: I think we’re facing a crisis in low-wage work, and it threatens the American Dream. I know that sounds melodramatic, but I think the facts would bear me out.
KARLA MURTHY: For example, Berlin notes, that a male who only graduates from high school earns 14 percent less today than he did in 1975, adjusted for inflation, according to the US Census Bureau.
GORDON BERLIN: It’s leading to lower employment rates. So we need to get work at the low end to pay again, and the earned income tax credit is one of the most promising vehicles for doing that.
KARLA MURTHY: Expanding the EITC has bipartisan support in Washington. This was republican Paul Ryan more than a year before he was elected Speaker of the House of Representatives:
PAUL RYAN We should make sure that in this country, it always pays to work. I would do that by increasing the earned income tax credit for childless workers.
KARLA MURTHY: President Obama reiterated his call for the same change in his State of the Union address last month.
PRESIDENT BARACK OBAMA: I’d welcome a serious discussion about strategies we can all support, like expanding tax cuts for low-income workers who don’t have children.
KARLA MURTHY: Currently, to qualify for the EITC, a childless worker has to be at least 25 years old and earn below $15,000 a year, while a single parent with three kids can earn almost $48,000. And the maximum credit a childless adult can get is about $500, one-twelfth of the more than $6,000 a single parent with three kids could receive.
President Obama and Speaker Ryan have made similar proposals: doubling the existing credit, lowering the eligibility age to 21, and increasing the maximum eligible income to about $18,000. That would make about six million more low-income workers eligible for the EITC.
But it would come at significant cost: at least $5.5 billion a year in new federal spending, according to the Office of Management and Budget. Questions about how to pay for an EITC expansion are one reason bipartisan efforts have stalled in Washington. But here in New York City, expanding the EITC for some single workers is already underway.
KARLA MURTHY: It’s a pilot project called “Paycheck Plus,” and here’s how it works: The existing EITC for workers without dependent children is being supplemented. Participants who earn less than $30,000 a year are eligible for a bonus of up to $2,000, depending on how much they earned.
Gordon Berlin’s organization, MDRC, is running the three-year demonstration project of “Paycheck Plus.” 3,000 New Yorkers are enrolled, along with a control group of childless adults not receiving the bonus.
GORDON BERLIN: There’s a lot of uncertainty about whether singles and men would respond in the same way that fathers and mothers of dependent children have responded in the family EITC. We don’t know what effect it might have on poverty or income or hardship. And we certainly don’t know what the effects on employment and earnings will be.
KARLA MURTHY: The total cost of project, including the bonuses, is about $12 million dollars. And is funded mostly by New York City with support from the federal department of health and human services and private foundations.
KARLA MURTHY: While Carmelo Nieves doesn’t benefit from the federal EITC, he received about $1,500 from New York’s “paycheck plus” last year.
CARMELO NIEVES: I just put it away, rainy days. You know, paid a couple bills. But I’m single, so I don’t have no kids or anything like that, so I put it away.
KARLA MURTHY: How hard has it been just to find a job that pays enough so that you can live here?
CARMELO NIEVES: It’s very hard. If you don’t know nobody, that’s going to hurt. And sometimes just your education background also hurts you too, because nobody wants to hire people that just have a high school diploma.
RECEPTIONIST: Are you part of Paycheck Plus?
ALVIN MARTINEZ: I am.
RECEPTIONIST: You are.. Can you sign right here?
ALVIN MARTINEZ: Of course I could.
KARLA MURTHY: Alvin Martinez is another “Paycheck Plus” participant. He works as a transportation coordinator for a non-profit organization that provides shelter and jobs for the homeless. At tax time last year, he says some extra money would have really helped him pay bills.
ALVIN MARTINEZ: I had debts, you know. I was hardly bringing anything to the table here, because I was out without work prior to that job for about six months.
KARLA MURTHY: Filing his taxes as a single person with no dependents, Martinez was not eligible for the federal EITC. He is a father of three children, but none live with him. About 12 percent of “Paycheck Plus” participants are noncustodial parents like him.
Martinez qualified for a “Paycheck Plus” bonus of nearly $500, but he didn’t get to keep the money. Like the federal EITC, the “bonus” is subject to child support claims.
ALVIN MARTINEZ: The check was intercepted, and it went to the child support enforcement unit. I’m telling you, I smiled. I was really happy about it. I wasn’t annoyed with it at all. It was fantastic. Something was getting paid in that direction, you know.
KARLA MURTHY: That wasn’t hanging over your head anymore.
ALVIN MARTINEZ: Exactly my point.
KARLA MURTHY: Researchers are studying whether the “bonus’” improves things like child support payments or reduces involvement in the criminal justice system, and, whether the incentive of extra money encourages people who aren’t working to find jobs.
LAWRENCE MEAD: I think the EITC’s very successful. I certainly support it. But its main effect is to increase earnings on a part of people who are already working.
KARLA MURTHY: Lawrence mead is a professor at New York University and a visiting scholar at the American Enterprise Institute, or AEI, a conservative think tank.
His academic work helped inform the Welfare Reform Act in 1996, which set time limits on how long people could receive benefits and required recipients to work.
LAWRENCE MEAD: We tried work incentives in welfare for 20 or 30 years before the ‘90s, when we finally got serious about requiring people to work. And that is the main reason they went to work: they were required to work.
KARLA MURTHY: Mead is skeptical that expanding the EITC to childless adults and noncustodial parents will be enough to encourage such single low-income workers to get jobs.
LAWRENCE MEAD: The evidence that I see is that the work incentive is helpful, but you also need staff people to say to those who are on welfare, or who could benefit from EITC, that they should go and do it.
They need to be persuaded. They need to be shown that this is a good deal. That’s what we did in welfare reform, and that’s why it was successful. It was the combination of what I call “help and hassle.”
We need for the same thing, we need to obligate them to work in the case where they have an obligation, and at the same time, give them this incentive.
KARLA MURTHY: When it comes to raising incomes, the existing federal EITC has been broadly celebrated. For instance, in 2013 the credit boosted 6.2 million people over the poverty line.
KARLA MURTHY: But administering one of the largest benefit programs through the tax code is not without flaws. The Internal Revenue Service concedes that as much as 27-percent — or roughly $18 billion a year of EITC payments are issued improperly. Mostly overclaims, due to complex eligibility guidelines, misreported income, and errors by tax preparers.
But at the same time, many low-income people are missing out on the EITC; only four out of five eligible workers claim it. And increasing awareness has been a focus of the IRS
IRS PSA: If you worked and didn’t make much money last year, find out about the earned income tax credit at “irs.gov”.
KARLA MURTHY: “Paycheck Plus” is expanding to Atlanta, where researchers will study its impact on a city with lower average incomes and a lower cost of living.
Here in New York, Alvin Martinez saw his income rise in 2015 to nearly $28,000. He’ll still qualify for the “Paycheck Plus” bonus this tax season, but it will likely be only a few hundred dollars.
ALVIN MARTINEZ: I’ve done a lot of overtime this year, and I thank god for that. And I’ve never worked thinking, ‘Oh man, I might make too much money and “Paycheck Plus” I might get nothing.’ No, what I receive, I’m grateful for whatever, two dollars, fine.