NC Budget and Tax Center

President Obama’s 2015 budget strengthens federal Earned Income Tax Credit for childless workers

Yesterday, President Obama released his fiscal year 2015 budget proposal that includes several important improvements to the pro-work Earned Income Tax Credit (EITC) and Child Tax Credit (CTC). When taken together, these improvements will reduce poverty among low-wage workers and their families, reduce income inequality, strengthen work incentives, and give a boost to North Carolina’s economy—all without adding a dime to the deficit.

Under the President’s proposal, approximately 381,000 low-wage workers without children in North Carolina would get a much-needed income boost. Currently, a childless adult working full time at the minimum wage pays significant federal income and payroll taxes, but receives an EITC of less than $30. In fact, childless workers are the sole group of workers that the federal tax system actually pushes below the poverty line, according to the Center on Budget and Policy Priorities.

Fortunately, the President’s proposal would reverse course and boost tax fairness by expanding the now-tiny EITC for childless workers, an idea that has growing support across the political spectrum. The proposal would also make workers between the ages of 21 and 25 eligible who are currently excluded from qualifying for the EITC.

Under the President’s proposal, the EITC for a childless adult with wages at the projected poverty line ($12,566) would rise from $171 to $841. This boost would more than cover a month’s worth of fair market rent for a one bedroom rental in most counties in the state. And for a childless adult working full time at the minimum wage, the credit would be a bit more modest and jump from $22 to $542.

Blog Post_President's Budget, EITC expansion_CHART

The expected income boost and pro-work incentives are especially important for less-educated young people—African American men, in particular—who may face multiple challenges when beginning their working careers. The result will help them gain a foothold in the economy.

The President’s proposal also will significantly help low-income working families with children by making important improvements to the EITC and CTC permanent. These improvements, first enacted in 2009 and slated to expire in 2017, have increased the number of families eligible for the EITC and boosted the amount of the credit available for many others. In 2013, more than half a million Tarheel families have benefited from these improvements, and each year over 2009 to 2012, they lifted an average of 52,300 North Carolinians, including 30,700 children, out of poverty.

As a result, the EITC is a worthy investment: it has a proven track record of boosting employment among parents.  And, research has shown that the EITC also has important positive long-term impacts on children, helping them to do better in school, improving academic performance, and boosting college attendance rates. It would also give our economy a boost. Eligible workers will get to keep more of what they earn and, in turn, spend those dollars here in our state.

The President’s proposal builds on this record of success by extending important improvements in the EITC and CTC so that these credits can do more to increase employment and reduce poverty among these low-wage workers. Congress should take the next step and approve the President’s proposal to improve these important tax credits to encourage work, stabilize incomes, and reduce poverty.

In an ironic twist of fate, the President’s proposal comes almost exactly one year after Governor McCrory’s approval of legislation putting an end to the North Carolina’s Earned Income Tax Credit. Given the evidence that the EITC is an effective anti-poverty and pro-work tool, state legislators should reinstate the state credit—which builds off the successes of the federal credit—during the Short Session of the legislative cycle.

One Comment

  1. Emilia

    March 19, 2014 at 6:52 am

    George W’s policy put in place an economy in which anyone who earns more than $455/week ($23,660/year) is classified as executive/managerial ineligible for overtime pay.

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