About 142,000 Connecticut residents would get more money or be newly eligible for the Earned Income Tax Credit if President Obama can sell this part of his budget proposal. The budget rolled out Tuesday.
The EITC returns payroll taxes paid by the working poor, and in some cases, gives them checks beyond all the federal taxes they paid. About $63 billion a year is distributed to 32 million working families through both the EITC and the child tax credit. In Connecticut in 2012, workers received $438 million in federal tax refunds from these credits.
People who don’t have children living with them can qualify for the EITC, but for these workers, the payments are very small. For the average worker who’s childless, whose kids are grown, or whose kids live with the other parent, the refund is just $264. For the average custodial parent, the EITC pays $2,905.
Obama wants to increase the EITC for the childless to $1,000 from the current maximum of $487. He would also expand eligibility for independent adults 21 to 24 and for workers who are 65 and 66. Students who are still claimed on their parents’ taxes would continue to be ineligible.
He also would increase the earnings ceiling for phasing out the credit.
Nationwide, 7.7 million people who currently qualify for the EITC would receive larger checks and 5.8 million people would be newly eligible. The expansion would increase the cost of the program by less than 10 percent, with an estimated $60 billion in refunds over the next decade.
Obama suggests the cost of the expansion be offset by revenue from closing tax loopholes on private equity managers, hedge fund titans and real estate developers, who are allowed to take much of their wages as capital gains rather than salary, which means they pay a lower tax rate.
Commentators have said Obama’s budget priorities are dead on arrival. Last week, U.S. Rep Paul Ryan, head of the House Budget committee and a leader in shaping conservative spending priorities, praised the EITC as more effective than raising the minimum wage. Tuesday, he released a statement that said: “This budget isn’t a serious document; it’s a campaign brochure.”