Wednesday, October 22, 2008

Work and the Earned Income Credit

The very best program for social uplift is a job. With the exception of persons dealing with severe, chronic disabilities, employment must be the central piece in any strategy to overcome poverty.

The basis for the highly successful Earned Income Tax Credit (EITC) initiative is this fundamental belief in the supreme importance of work. Here at Central Dallas Ministries we have encouraged the low-income working men and women that we know to file a tax return to secure this credit. At one point, our public interest law firm secured a grant from the Internal Revenue Service that allowed us to do this work more effectively.

As a tax strategy to reduce poverty and its ill effects on the nation, the EITC was the idea of Richard Nixon, and was signed into law by Gerald Ford in March 1975. The program has received broad bipartisan support from its inception and has been expanded over the years.

The EITC provides a tax refund to all workers in poverty, who earn less than a certain amount annually--regardless of whether they pay income taxes. The EITC is designed to move people aware from federal welfare assistance and into lives of work. Bottom line: the EITC establishes a minimum annual salary for workers. If a worker earns less than the baseline minimum, she or he receives an earned income credit that raises annual earnings to the established minimum.

Ronald Reagan referred to the EITC as "the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress." He increased funding for the effort, as well as the minimum baseline several times. George H. W. Bush expanded the EITC as well.

Senator John McCain has been a consistent supporter of the EITC. Last Saturday (October 18, 2008), the Washington Post reported that, "In fact, in 1999, Mr. McCain opposed efforts to change the earned-income tax credit, which gives payments to the working poor, and called it a 'much-needed tax credit for working Americans.' And in this campaign, he has proposed to use the tax code to do more such 'wealth-spreading."

The Hoover Institute describes the EITC as: "...probably the most cost-effective anti-poverty program the federal government operates."

Using the federal tax code to incentivize work, lift families and promote economic growth is sound policy. The EITC has been supported by leaders from both major political parties. It is an effort that works, while rewarding work!



Justin said...

What if we were to give dollar for dollar tax credits to people who donate to places like CDM? Do you think that would be a boon to poverty relief efforts?

Anonymous said...

Quite a success story. This kind of program, which crosses the partisan divide, is ideal for achieving both agreement in Washington and success on the ground.

Justin: that can't happen because many people who now do would then pay no taxes, and the government has to "eat" too.

Anonymous said...

Anonymous 12:23, too true. The other problem is that the overwhelming percentage of charitable gifts go to three categories:

1. churches (about 50%)

2. colleges

3. hospitals (if I remember correctly, about 30 to 40% of the total goes to churches and hospitals total).

Not much goes to help for the indigent, and if 100% tax credits were available, then those would be the only programs to get funded.

John Greenan

Anonymous said...

hey, isn't this the program behind Obama's statement to "Joe" the so-called plumber about giving a tax break to people who don't earn enough to pay taxes? I'm about certain it is and it really makes sense to hold out a real incentive to work. Jobs that pay too little to live on still can be done thanks to this program. Correct me if I'm wrong on this.

c hand said...

"Joe" the so-called plumber????

Why is the left so mad at joe?

Anonymous said...

Yes, this is the program back of Sen. Obama's comments to Joe the plumber. Many of Joe's employees in the company he wants to buy would benefit from the EITC program. This is all that Obama meant by "spread the wealth around." Certainly not socialism!

Peter Allen

Anonymous said...

It is amazing to me that so many, especially single mothers, who don't realize they can take advantage of this credit by increasing their take home pay instead of waiting until income tax time. That would help put more food on the table right away.

Anonymous said...

The GOP certainly has spread the wealth around or on Palin that is!

The contest is over.


Chris said...

The way I understand it, the more ones income is increased the less tax credit you get. This might lessen the incentive to increase your income.

It also would be nice if it were called something else. If you don'r pay taxes how can it be earned?

Daniel Gray said...

The credit phases in, reaches a plateau, and then phases out. For a family of four, the credit phases out at 21%, so it is not a huge disincentive. For every $1,000 extra income, the family is still getting $790 of it. Although extending the phaseout range would definitely encourage the incentive to work.

Earned Income -- Tax Credit... Earned is in reference to income. It is a tax credit for earning income.

Justin said...

I wasn't thinking about dollar for dollar for 100% of taxes, and not for any charitable gifts, but for organizations such as CDM who provide poverty relief efforts to people. I feel like CDM does a much better job than many government programs do... not to mention they probably have less overhead, because a good portion of their income comes from donations, and people that donate and support want those dollars to be spent in the best way possible.

Larry James said...

Justin, we appreciate your confidence in our work. One thing folks don't always understand is the fact that local, state and federal sources provide CDM funds to do the work that we do. We have a contract with the Dept of Agriculture here in Texas to administer and deliver services for the summer lunch program for children from low-income families. This past summer we served 7,500 children over 300,000 meals. The state picked up the tab, but we did the work and related to the children and supported local/neighborhood groups who ran summer programs. More and more, especially since the radical down-sizing of traditional welfare programs, work like this is funded by public sources but the work is done by non-profit and community-based organizations like CDM.

Justin said...

I understand that you get a large portion of your funding from the government. I would imagine (and maybe I'm totally wrong here) that taking those government funds come along with oversight and regulations? If we were to use tax credits, and were able to make up what the government was giving you, or even get more funding, without the strings that come with receiving money from uncle sam, would that not be a good thing? Not to mention, I can guarantee that by giving money directly to you, rather than it having to be funneled through the government, it would result in less total cost for everyone. Fewer bureaucrats to pay, means that CDM is getting more of the pie, cause the fed's don't have to scrape off stuff from the top.

Daniel Gray said...

No nonprofit is perfect. Federal "strings" can be a very good thing.

Anonymous said...

My parents' qualified for the EITC several years ago, my dad, the sole income earner, had to have hip replacement surgery (he was 48, had an accident at the chemical plant he works at a few years before) and he was out of work and on disability for 3 months while it healed. They had 2 children at home at the time and it helped them tremendously.

I shudder to think what America would be like without the EITC or head start/early head start, two of the most successful government policies for lower income people ever.

Anonymous said...

Thanks for this.

What else do you do to help people with employment? What about your GED program? Job training?

Could I talk to someone who might tell me which way to go on something like a GED program?


Larry James said...

newheights, thanks for the posts. Sure, you can talk to our WorkPaths folks. I'd call Gerald Britt for starters at 214-823-8710 ext 114. We have not had a GED program here at CDM for several years. Many other programs in Dallas to which we refer folks who are interested.