The history and theory behind the Earned Income Tax Credit
The Earned Income Tax Credit (EITC) is the country's largest anti-poverty program. In 2018, over 20 million filers received $63 billion in EITC refunds. Because of its bipartisan popularity and its secure position in the tax code, with no distinct administrative unit managing its payouts, it is also at the center of several substantial anti-poverty programs recently floated in the House and Senate. These proposals variously expand and modify the EITC, often in concert with the Child Tax Credit, in order to offer a more robust benefit.
A look into the history of the EITC reveals that, at its formation, the credit was an unlikely candidate for a major anti-poverty vehicle. In a CONGRESSIONAL RESEARCH SERVICE paper, MARGOT KRANDLE HOLLICK lays out its legislative history, showing that its 1972 introduction by Senator Russell Long was an intervention against proposed guaranteed income programs, and that "the bill had originally included a provision that would have required states to reduce cash welfare by an amount equal to the aggregate EITC benefits received by their residents." From the paper:
"The origins of the EITC can be found in the debate in the late 1960s and 1970s over how to reform welfare—known at the time as Aid to Families with Dependent Children (AFDC). Some policymakers were interested in alternatives to cash welfare for the poor. Some welfare reform proposals relied on the 'negative income tax' (NIT) concept. The NIT proposals would have provided a guaranteed income to families who had no earnings (the 'income guarantee' that was part of these proposals). For families with earnings, the NIT would have been gradually reduced as earnings increased. Influenced by the idea of a NIT, President Nixon proposed in 1971 the 'family assistance plan' (FAP) that 'would have helped working-poor families with children by means of a federal minimum cash guarantee.'
Senator Russell Long, then chairman of the Senate Finance Committee, did not support FAP because it provided 'its largest benefits to those without earnings' and would, in his opinion, discourage people from working. Instead, Senator Long proposed a 'work bonus' plan that would supplement the wages of poor workers. Senator Long stated that his proposed 'work bonus plan' was 'a dignified way' to help poor Americans 'whereby the more he [or she] works the more he [or she] gets.'"
Link to that paper.
- A 1999 Brookings paper by historian Dennis Ventry also examines the unique political history of the EITC, writing that its emergence appealed to legislators as "both an anti-poverty and an anti-welfare program." Link.
- Brian Steensland's excellent book The Failed Welfare Revolution: America's Struggle Over Guaranteed Income Policy surveys this history in depth. Link. And link to a 2006 paper that preceded its publication, on cultures of "worth" and anti-poverty programs.
- A 2015 Duke Law Review Note titled "Earned Income Tax Credit: Path Dependence and the Blessing of Undertheorization," examines "the credit’s path-dependent past, which has resulted in a present-day EITC that manifests a diverse, uncoordinated assortment of policy purposes." Link.
- The above-linked recent proposals have focused on expanding the program's breadth, but retain in some form the "phase-in" structure originally proposed by Long, which excludes non-waged workers from claiming the return. Link to a (previously shared) critique of this structure—and work-tied benefits more broadly—by Matt Bruenig. Link to an also previously shared paper by JFI Fellow Max Kasy, which proposes expanding the EITC into a universal benefit.
- Our colleagues at the Economic Security Project have developed a proposed "Cost of Living Refund," which tackles several important issues with the EITC. It includes proposals for monthly disbursements and expanding eligibility to un-waged care work. Link to the project's website, which hosts research and model legislation.