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Why should John get money back that he has not paid into the tax system? Larry and I make the same amount of money, and I don’t get a $4,000 refund so why should he get one? John and Larry are low-income workers who have benefited from the controversial Earned Income Tax Credit. Most people have probably heard these types of statements before since these are the arguments used by many of the people who are opposed to this tax law. Although there is opposition to the Federal Earned Income Tax Credit or EITC, this program offers benefits to low income workers that far outweigh the opposition by offering people a chance to make a difference in their lives.
The EITC is a refundable federal tax credit designed in 1975 for eligible families and individuals that work and have earned income under $32, 121. The EITC is part of a federal effort to fight poverty and move Americans from welfare to work. It is designed to provide an incentive to work by helping families who are trying to help themselves. The idea is that people who work should not be poor and provides supplemental income these families can use to move their family over the poverty level thus improving their standard of living. A simple explanation of how the EITC would work is if John, a low-income worker, earned $10,000 last year and had a tax liability of $2,000. Under the EITC John would receive a credit of $2,000 and at the end of the year he would receive a refund of the tax he paid. If there were no EITC the government would keep John’s $2,000 and he would be left with only $8,000 to support his family. The EITC helps families make a difference in their lives by not taxing them further into poverty.
The wages earned by low-income workers have not kept pace over the last two decades with those earning larger incomes. Despite strong economic growth, the income gap between rich and poor has widened. This is another area where the tax credit can help to make a difference. The EITC does more to increase family disposable income than the minimum wage because the EITC is not subject to payroll taxes unlike earned income. Also, the EITC does not reduce income based eligibility for other government programs intended to help low income families such as food stamps and Medicaid.
Those who oppose the EITC believe that it is unfair to ask middle or upper income tax payers to pay higher taxes to shoulder the tax burden so that public assistance can be increased for those who pay little or no tax. The detractors consider the EITC as just another welfare program hidden in the form of an income tax credit. Ruth Conniff explains how this kind of thinking can “lend legitimacy” to the “disgruntled taxpayers who feel an economic crunch and are looking for someone to blame” (267-68). Regardless of what the government does there are always going to be disgruntled taxpayers. In addition to these arguments some people believe that the EITC actually discourages people from working, because as the wages of low-income families increase the benefits of the EITC are reduced. Another complaint about the EITC is that it is considered income redistribution. In other words, some people think the government takes money from the rich people and gives it to the poor people.
Living from paycheck to paycheck can create a hardship for low-income workers and their families. The purchase of necessities is put off because there is simply no money to buy them. Therefore, when a large lump sum of money is received many of them use it responsibly to help themselves overcome some of these hardships. The purchase of an automobile, major car repairs, dental work, eye glasses and major appliances are all examples of this type of purchase. Not only does this money give low-income workers buying leverage, but it can create flexibility for families who use their tax refund wisely by making the money go even farther. Spending $1,000 of a tax refund to pay off a credit card with 18% interest will save $180 a year. Spending $300 of the refund to purchase a washing machine could mean that a family would no longer spend $10 by washing clothes at the laundromat every week. The washer would pay for itself in thirty weeks and save the family $220 the first year they own it. They could then use that $220 to purchase other necessities for their family.
Low-income workers cannot lift their families out of poverty without assistance or other sources of income. Millions of children no longer live in poverty as a direct result of the EITC. Do the detractors of the EITC value their tax dollar so strongly that they support reform even if it leaves hard working people and their children in poverty? Taxpayers have been asking for welfare reform for years, and the EITC is part of the solution. Many people believe that if they work hard and play by the rules that they can support their families. Isn’t that the message they wanted to send to the people on welfare? By offsetting the burden of payroll taxes for low-income workers they receive a chance to move forward financially instead of backward. Surely these people do not want to tax low income workers further into poverty! We need to be careful not to send the wrong message to people who are already struggling just to make a living.
Works Cited Conniff, Ruth. “The Culture of Cruelty.” The Genre of Argument. Ed. Irene L. Clark. Fort Worth: Harcourt Brace, 1998. 265-273.
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