What's the best way to help the working poor?
The usual answer is a boost in the minimum wage, which has remained at $3.35 an hour since 1981.But now Congress is starting to consider a more promising alternative - expansion of the earned income tax credit (EITC).
First enacted during the 1975 recession, the EITC currently provides a 14 percent credit on the first $5,714 earned by a family with one child or more, or an $800 maximum credit, and is indexed to inflation. Starting this year, the EITC is being phased out gradually for families earning between $9,000 and $17,000.
To receive the benefit, all a family must do is file an income tax return with the Internal Revenue Service. Families may apply in advance for the credit, which is then added to the worker's paycheck, providing greater take-home pay on a regular basis.
Congressional Quarterly reports that support for the proposal to expand the EITC is growing so much that Sen. Edward M. Kennedy, sponsor of the Senate bill to hike the minimum wake, is looking at the EITC as a possible alternative. Since increasing the minimum wage often forces employers to lay off marginal workers, the EITC certainly ought to be seriously considered.
One objection to an expanded EITC is that it does nothing for low-wage workers who are not supporting a family. But then such workers are mostly teenagers holding their first jobs, not seasoned workers.
Another objection is the cost of the expanded EITC: about $2 billion, according to the Congressional Budget Office. Such an increase would hamper Gramm-Rudman efforts to curtail federal spending enough to eventually balance the budget.
But the cost of the expanded tax credit just might be offset by the resulting savings in welfare costs. If so, then this proposal certainly should be one of those ideas whose time has come.