Modernizing Tax Credits to Provide True…
Alyson Wise

Alyson Wise Associate Director, The Rockefeller Foundation

Natalie Foster

Natalie Foster Co-Chair, Economic Security Project

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November 27, 2018

Modernizing Tax Credits to Provide True Economic Security

Alyson Wise

Alyson Wise Associate Director, The Rockefeller Foundation

Natalie Foster

Natalie Foster Co-Chair, Economic Security Project

Tags for this post
November 27, 2018
Photo by Chevanon Photography from Pexels

Millions of Americans are feeling financial strain from the rising cost of living and stagnant wages. Nearly 40 percent of adults say they had trouble meeting basic needs last year, and more than half say they do not have enough savings to cover a $500 emergency expense. This includes people who are working—often more than one job—and still cannot make ends meet.

While low-skill workers are the hardest hit, the effects are felt up and down the economic ladder, dramatically shifting the landscape for individuals who historically have enjoyed a middle-class life. The problem is compounded for the 4 in 10 workers who draw down incomes from the gig economy, part-time jobs, and other forms of contingent work that can lead to insecurity and volatility.

The Earned Income Tax Credit (EITC) offers a partial solution to these challenges. A proven, effective policy intervention with a long history of bipartisan support, the EITC currently lifts more families out of poverty than food stamps, housing subsidies, and unemployment insurance combined. In 2016, it lifted 5.8 million people out of poverty, including 3 million children.

What could happen, if we reimagined this longstanding benefit to fit the changing needs of American workers today?

The tremendous impact of this policy reminds us that we must not underestimate the power of putting money in people’s pockets. Yet the current EITC, for all its success, does not reach all of those who find themselves vulnerable as work evolves, families change, and wages fall short.  At The Rockefeller Foundation, we’re interested in understanding what it will take to help households sustain and thrive in the modern economy. In response to the Earned Income Tax Credit’s impressive track record for results, we asked ourselves: What could happen, if we reimagined this longstanding benefit to fit the changing needs of American workers today?

One Rockefeller Foundation grantee, the Economic Security Project, put forward an answer—and after conducting extensive research and modeling, created the Working Families Tax Credit. This proposal would provide up to $500 per month to every adult who is working in some way and lives in a household making less than $50,000 per year. Under this proposal, anyone who qualifies for the current federal EITC would be eligible, as well as middle-class people, younger people, caregivers, and students. Overall, the modernizations include:

  • Doubling the EITC for working families struggling with the rising cost of living (and increasing the credit for childless workers almost sixfold);
  • Expanding it up into the middle class, to acknowledge increased financial precarity up the income ladder;
  • Redefining what counts as work by including caregiving and education to help families take care of one another, acquire skills, and still get ahead; and
  • Providing the option to receive the credit monthly, simplifying the complexity of the federal EITC and making the benefit more predictable and easier to understand.

According to the Economic Security Project, A Working Families Tax Credit may also have an added bonus—it could be an effective way to help workers not only sustain today but also succeed tomorrow by giving them the means they need to gain new skills as automation and artificial intelligence change the nature of their jobs and the opportunities available to them.

At The Rockefeller Foundation, we see this as one example of the bold thinking we need to modernize our nation’s economic policy and social safety net. The challenges facing working Americans will require bold solutions—and, as the Economic Security Project’s proposal demonstrates, we don’t always have to start from scratch. There’s so much we can draw from as we set our sights on the horizon.

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