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Expand EITC and make benefits portable.

The Earned Income Tax Credit

The Earned Income Tax Credit is a critical tool for low-wage workers who depend on the funds every year to stay above the poverty line. Data shows that the EITC helps reduce stress, decrease mortality rates, and improve children’s school performance. Because it is a tax credit rather than a cash benefit, it also has a high level of popularity among those who qualify to receive it. We recommended on-going support for the EITC as an income supplement, with some key modifications to make it more effective for childless workers and flexible enough to cover a range of both short-term and long-term financial needs. 
Our recommendations to strengthen the EITC as a tool for economic mobility include: 
  • Strengthen the EITC to include childless workers. Today, the federal tax code taxes about 7.5 million childless adults aged 21 through 66 into or deeper into poverty. This is due, in large part, to the fact that they are the only group largely excluded from the Earned Income Tax Credit (EITC). Though differences remain on how to implement, there has been bipartisan support for enhancing the EITC by extending it to childless workers, lowering the eligibility age from 25 to 21 and raising the maximum credit to about $1,000.
The EITC, however, is paid as an annual lump sum. Data show that families often use the money to pay off debts from previous months, during which they were in the red. Various proposals and projects have looked at pre-paying the sum, providing incentives to save the money in a deferred account, and paying out the sum in installments throughout the year.
  • Rainy Day EITC – The program would allow taxpayers to defer 20% of their EITC for six months and receive a modest savings match for doing so. By taking advantage of the “savings moment” made possible by the lump sum refund at tax time, the Rainy Day EITC would empower low-wage workers to build a source of emergency savings for use later in the year. The proposal would increase EITC costs by roughly 1.3%.
  • Early Refund EITC – Until 2011, EITC-eligible workers could opt in to an “Advanced EITC” (AEITC) program that provided monthly payments of EITC benefits, but because of low take-up and high error rates, Congress eliminated the program. The Center for American Progress has proposed a new early payment program, the Early Refund EITC, which aims to improve upon the old AEITC. The Early Refund EITC would allow workers to access up to $500 of their future EITC refund in the second half of the year. The reform’s goal is to reduce demand for predatory loan products by providing an alternative source of liquid funds.
  • Other researchers have explored alternative early refund delivery options. Steve Holt, in a 2008 Brookings Institution paper , called for a broader program providing periodic advance payments of the EITC. The Chicago Earned Income Tax Credit (EITC) Periodic Payment Pilot is currently testing an advanced EITC payment program with promising early results.

Reducing Barriers to Savings in Government Programs

Asset or resource limits are limits placed on the amount of savings a family can hold and still be allowed to qualify for federal programs such as the Supplemental Security Income (SSI) program, Supplemental Nutrition Assistance Program (SNAP), the Low-Income Home Energy Assistance Program (LIHEAP), and Temporary Assistance to Needy Families (TANF). While these policies were originally intended to ensure that “asset-rich” families did not receive such benefits, such policies have generally not adapted to the changing nature of these programs, which aim to move families to self-sufficiency. In addition, the dollar amount of most asset limits has not changed since they were originally established, meaning they have not kept pace with inflation. 
 
While asset limits can play an important role in program integrity, limits can also act as penalties against savings. This makes it difficult for families to take advantage of other opportunities to invest in their long-term futures, such as by paying for credentialing programs or putting a security deposit down on an apartment in a safer neighborhood. They undermine the ability for people to take advantage of the other opportunities proposed in this document.
 
Asset limits for Medicaid and SSI are set federally. Asset limits for SNAP, TANF, and LIHEAP are set by states.

We recommend:
  • Asset limits in programs designed to move families to self-sufficiency should be carefully evaluated to ensure that they balance the need for program integrity with the need to give families an incentive to save and invest for the future. Policymakers should consider whether it is appropriate in some cases to increase the asset limit and index it to inflation going forward or, in others, to remove the asset limits entirely.

    Ensure that certain classes of assets or resources are exempted from asset tests, such as savings for any type of post-secondary education or credentialing program. Otherwise asset limits can discourage low-income families from saving for higher education by making them choose between saving in a 529 and/or CSA (Children’s Savings Account) and keeping their public benefits. Because transportation is usually necessary for program recipients to successfully participate in the workforce, the value of a household automobile should also be excluded from the asset test, as is presently the case in the SSI program.

Benefits Portability

As more workers generate income from non-traditional arrangements, including contract work and multiple, part-time jobs, there is a growing need for more flexibility and portability of employment benefits. At the core, there is a recognition that workers should not lose the protections of traditional employment—workers compensation, unemployment insurance, paid leave, health insurance, and retirement savings—as work shifts to more flexible arrangements in the new economy. Currently, “gig economy” workers are generally excluded from the social safety net provided by traditional employment, with detrimental effects. See The Aspen Institute overview on Portable Benefits for more information. 

While several issues remain unresolved (what benefits are included, what level of contribution and benefits are considered adequate, who pays and how much, what regulations and policies could enable such a system?), there are three common themes across proposals for portable benefits which our group supports: 
  • Portable : Workers’ benefits are not tied to any particular job or company; they own their own benefits.
  • Pro-rated : Each company contributes to a worker’s benefits at a fixed rate depending on how much he or she works, or earns.
  • Universal : Benefits cover independent workers, not just traditional employees.

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