Earned Income Tax Credit change gives people power
For more than 30 years, the Earned Income Tax Credit (EITC) has been one of the most effective ideas for lifting millions of working people from poverty while growing our economy.
Dating back to when President Reagan called the EITC the “best anti-poverty, best pro-family, and best job creation measure” we have, Republicans and Democrats have long supported a strong EITC. In his most recent budget, President Obama proposed making the EITC even stronger by expanding it to help workers without children and to give younger workers a boost by reducing the minimum eligibility age from 25 to 21. These are smart reforms that will help put more workers on firmer financial footing.
Here in Chicago, we are introducing another reform that will help working families stretch their paychecks from the beginning of the month to the end of the month: give workers the choice of receiving their EITC in regular payments throughout the year. This is an idea we are testing this year in Chicago.
Right now, EITC recipients are forced to rely on one lump-sum payment at tax time. This forces too many working families who live paycheck-to-paycheck to rack up significant debt in order to make ends meet. Many families turn to predatory lending products like payday loans to bridge this gap, fueling a billion dollar industry that imposes fees and interest ranging from 40 to 700 percent.
We can do better than this. Our residents deserve an option where they will not be taken advantage of financially.
Here in Chicago, we are road testing an idea that has been proven to work in countries like the United Kingdom and Canada. We are launching a pilot program that will provide 500 Chicago Housing Authority residents with quarterly payments in advance of their year-end payment.
This will mean that people who depend on their EITC check to help them catch up and pay off bills, won’t have to wait until tax time to receive it. Instead, they will get regular quarterly payments to help them cover expenses and build savings throughout the year.
Our pilot will help create a foundation for expanding this idea across the rest of the city.
Several years ago, the Obama Administration ended a decade-old program that allowed people to receive advances on their EITC payments. This program had the right idea but executed it the wrong way. Rather than make it easier for people, it forced employers to administer the option and made it difficult for recipients. As a result, the process was too cumbersome and many people chose not to take advantage of it. Chicago’s approach cuts out the middle man and instead uses the City’s free tax preparation assistance service to sign up participants and distribute the advance payments.
Paying out the EITC in installments throughout the year gives people more economic power from their paycheck. It gives them less need to look to credit cards or predatory refund anticipation loans in order to make ends meet.
A strong EITC benefits the whole economy. Each year, the EITC lifts more than 6 million people out of poverty. This money oftentimes makes a critical difference every month for each recipient and their family. It also stimulates local economies because the typical EITC recipient spends $1.50 to $2 for each dollar of the refund they receive.
This is why I have fought to expand the EITC throughout my career. During my time in the Clinton Administration we doubled the size of the EITC, helping launch the only period during the past 40 years when income disparity actually shrank, and all during a time of economic expansion. In Illinois, I strongly supported the state’s doubling of its EITC in 2011. And as Mayor of Chicago, I have increased funding year after year for the City’s free tax preparation program, which this year will help 23,000 households claim $45 million in refunds and save $4.5 million in fees. Our new approach in Chicago and what the president has proposed in his budget are the right things to do for working people. That’s because the key word in Earned Income Tax Credit has always been “earned.” This is money that working people have already earned through their hard work.
By helping more people claim it and by supporting these commonsense reforms, we can finally make good on a promise we should make to everyone who works in America — that if you work hard, you should never have to live in poverty.
Rahm Emanuel is the mayor of Chicago.