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December 27, 2016

We Still Tax Too Many Low-Wage Workers Into Poverty

As the new administration and Congress begin to move their agendas next month, there is one bipartisan initiative floating around Washington that could drastically improve the the financial well-being of 13 million hardworking Americans, including over 300,000 Virginians: strengthening the federal Earned Income Tax Credit (EITC) to help low-wage workers.

The initiative has been supported by Speaker Paul Ryan, President Barack Obama and the new incoming Labor Secretary Andy Puzder. The EITC is a proven tool that reduces poverty. Today the EITC lifts 6.5 million Americans out of poverty each year by providing much needed tax relief to working families.

But now low-wage workers not raising children are the only group of workers in the United States that are still taxed into poverty. Around 7.5 million of these workers are taxed into or deeper into poverty each year, including 180,000 Virginia workers. The EITC has long provided a crucial boost for millions of low-wage workers raising children, often helping them keep above the poverty line. However, this credit is still unavailable to millions of young low-wage workers under 25 who are just starting out on their careers and many low-wage workers who are not raising children in their immediate household (including some who have children and make contributions to their well-being).

Both the current EITC and proposed improvements are only available to people who work and earn an income. Everyone who works hard, even if they do not have kids, deserves a shot at making enough to afford basic housing, food and other necessities. The EITC was devised to allow low-wage workers to keep more of their hard-earned money to make ends meet. Yet with the way the EITC is currently set up, too many working Americans fall through the cracks.

Virginians in the lowest quintile of earners – those making under $21,000 a year – pay the highest share of their income in local and state taxes. Additionally, each year 180,000 workers in Virginia are pushed into or deeper into poverty by the federal taxes they pay. Under Speaker Paul Ryan’s plan, 304,000 low-wage Virginian workers would benefit from improvements to the EITC for those not raising children.  

Each year, 180,000 workers in Virginia are pushed into or deeper into poverty.

Under the same expansion plan, 18,000 Virginia veterans and military members would qualify for the EITC or see a boost in their credit. When our veterans come home, they should never be stuck in a cycle where despite working hard and having served the country they are taxed into poverty.

The EITC often makes the difference for workers affording things like going back to school or putting in a down payment on a dependable vehicle to get to work, and it could be doing more. The most common occupations in Virginia of workers who would be helped by improvements to the EITC are cashiers, cooks, servers, retail workers, and custodians. These are community members who we interact with on a regular basis, many of whom are struggling to pay basic living expenses. The credit also pumps money back into the local communities where low-wage workers live.

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As Congress heads into session this upcoming year, they will have a unique opportunity to get behind a bipartisan initiative to help make the EITC work better for millions of hardworking low-wage Americans. Everyone would like to see poverty reduced, and this improvement to the EITC is a common sense initiative that both parties can get behind.

Category:
Education

Chad Stewart

chad@thecommonwealthinstitute.org

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