Can a Tax Credit for Millennials Help Prevent Poverty?

Photograph by Corbis

The Great Recession and its aftermath have been particularly unkind to millennials, the selfie generation—or whatever you call the crop of young adults flooding the workplace. High unemployment, low wages, and growing student debt have hit this group hard. Yet many are not eligible for one of the country’s main programs to reduce poverty, the Earned Income Tax Credit. Generation Progress, the millennial arm of the liberal Center for American Progress, is calling for the extension of access to the EITC to young people.

Come tax time, the EITC cuts checks for people who earn money but not enough to live on. Plenty of nonpartisan research—such as a recent report (PDF)—has shown that the EITC helps families move up the income ladder, as similar poverty reduction programs have done around the world by simply giving poor people cash. Because the EITC is largely given to families who get their income from wages and tips, it induces them to work, a reason that it is generally supported by both Democrats and Republicans. As my colleague Peter Coy has written, Ronald Reagan was a big champion of the EITC.

While families have been helped, the EITC has had less impact on adults without kids. Childless adults receive a smaller credit; if they’re under 25, they are eligible for a credit only if they are students who depend on their parents. This closes the option to childless students paying their way through school. Nor is it available to workers who are 18 to 24-years old and who aren’t parents or in school.

The Center for American Progress proposes that all childless workers over 18 should be eligible for the credit, as should independent students. “You shouldn’t have to live in poverty for five or six years to be able to access one of the most successful anti-poverty programs we have,” says Sarah Audelo, Generation Progress’s Policy Director. “When people access EITC, it’s not for the rest of their lives. For some people, that’s when they are 30 and 40. For others, it’s when they’re 18 or 19.”

Generation Progress also proposes making the EITC more generous during the “phase-in” period, when workers start earning, as well as in the “phase out” period in order to wean them off the program. “A childless, young, single woman in 2013 who earns a near poverty-level wage of $13,000 pays $2,314 in federal income and payroll taxes and only receives $101 in EITC benefits,” Audelo and her co-author wrote. “Together, her after-tax income is $10,787 which is $700″ below the poverty line.

The group proposes such further policy tweaks as suggesting that the Department of Education coordinate with the IRS to identify people with student loans who are eligible for the EITC, providing an early indication that they might need extra help and could benefit from programs that lower monthly payments.

Both Republicans and Democrats have recently proposed extending the EITC to childless workers as young as 21, but they’ve differed as to how to fund the increased costs and on whether the EITC should replace minimum wages. Generation Progress says the EITC and wage floors must go hand-in-hand, but its proposal avoids the funding debate. For now, Audelo says, the mission is to “put it out there” that young workers can’t wait to get out of poverty.

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