Pass an Emergency EITC Instead of Sending Cash to All Households
Congress is considering sending cash to all American households to help them handle the economic fallout of the coronavirus pandemic. But this will disproportionately benefit high and fixed-income households at the expense of low-income workers who remain the most economically vulnerable. Fortunately, there is a simple and efficient way for Congress to distribute aid to these workers and limit the long-term consequences of the current crisis: Pass an emergency earned income tax credit (EITC) that can be distributed to low-income households within weeks.
First created in 1975, the EITC today it is one of the largest income support programs for low-income working families. The amount of the EITC benefit is equal to a percentage of annual earnings and given to families in a lump-sum cash payment around tax time. It is determined by the number of children living in the household. Working households with incomes up to $50,000 per year can be eligible to receive this benefit. In 2019, the average EITC was $2,476 per qualifying household.
An emergency EITC supplement is a simple way to help low-income families overcome the immediate economic challenges presented by the COVID-19 response. Low-income workers likely cannot telework and many will face uncompensated work disruptions due to decreased consumer demand or caretaking responsibilities. An EITC supplement will offer them the needed flexibility to care for children during school closures or to attend medical appointments for loved ones who might be sick without worrying about lost pay. It will also supplement their earnings if they are needed for fewer hours in the restaurants, retail stores, and home health businesses they work for.
The unemployment insurance and paid leave provisions currently being considered by Congress will address some of the needs of low-income workers, but gaps remain in coverage and duration of benefits. The UI provisions only address the needs of workers who lose their job, and the paid leave benefits only offer support to those who are sick or caring for a child or ill family member. An emergency EITC will fill the gaps left by current proposals and offer security to low-income families, without the cost implications of sending cash to everyone.
Millions of low-income families recently filed their 2019 taxes (or will do so by April 15 2020) and qualified for the EITC. This presents a simple and efficient mechanism to boost the incomes of those most economically vulnerable during the current crisis. Congress should authorize an emergency EITC distribution to all 2019 EITC claimants, in the amount of $1,000 for single EITC filers and $2,000 for family EITC filers. This benefit could be provided within weeks of passage by Congress in a lump sum from the Internal Revenue Service.
In tax year 2018, 25 million tax filers — or approximately 20 percent of all filers — received a total of $63 billion in EITC benefits. Assuming a similar number of EITC tax filers for 2019, it would cost roughly $44 billion for the federal government to send $1,000 to single EITC tax filers and $2,000 to EITC tax filers with children.
The price tag is large, but this effort is more reasonable than sending every American adult cash or cutting payroll taxes — estimates suggest that such proposals could cost up to $1 trillion. An emergency EITC recognizes the economic vulnerability of low-income workers in the current crisis by filling in the gaps left by Congress’s UI and paid leave proposals. Low-income workers are the least likely to be able to telework, and they are the least prepared to take a reduction in work hours and pay, which puts them and the broader economy at risk. Congress can help by authorizing an emergency EITC — a quick and simple way to get resources to the Americans who need them most.
Angela Rachidi (@AngelaRachidi) is the Rowe Scholar in poverty studies at the American Enterprise Institute where she studies the effects of safety net programs on low-income populations.
