Those who talked with Harlem congressman Charles Rangel about his “mother of all tax reform” proposals while he was formulating it recall his saying that he wanted to “do something for the guys on 125th Street.” To date, most commentary has focused on the proposal’s high-profile aspects—including a phaseout of the alternative minimum tax and a 4 percent tax surcharge on individuals earning more than $150,000—and overlooked Rangel’s effort to deliver on his pledge to help out very low-income men through the wage supplement known as the earned income tax credit (EITC). Even the editorials, like yesterday’s in the Washington Post, that note Rangel’s proposed expansion of the EITC have failed to recognize that he’s missing a golden opportunity to do something for very low-income families as well—by eliminating the EITC’s existing bias against marriage.
The EITC is no minor part of the tax code. A “refund” that amounts to more than low-wage workers have had deducted in taxes from their paychecks, it has become the federal government’s most important antipoverty program. Its more than $40 billion in annual payments to low-income households already surpasses the costs of many better-known programs, including food stamps, cash welfare, and housing vouchers.
The EITC matches each dollar that a recipient earns with up to 30 cents, depending on the recipient’s income and number of children. A single parent with two kids who earns up to $14,800 qualifies for the maximum payment of $4,536, for example. But the program isn’t nearly as generous to earners without children—meaning, for the most part, very low-income men, such as those whom Rangel might see on the streets of Harlem. As the Center on Budget and Policy Priorities (CBPP) points out, the maximum EITC benefit for a childless worker will be just $438 next year, less than one-sixth the amount for a family with one child. So Rangel’s plan would double that maximum benefit, increasing it to $875 a year. That’s enough, opines the center, to “constitute a meaningful work subsidy”—a significant incentive, that is, for up to 7.5 million people to join or stay in the workforce.
But it doesn’t change the fact that the tax code penalizes a single, low-wage worker if he marries someone who also earns a low wage and qualifies for the EITC. If two low-wage earners marry each other, they get bumped into a tax bracket that leads to the loss of much or most of the EITC benefit. As their household’s earnings grow, the government whittles down the EITC—cutting it in half by the time the household earns $25,000, and eliminating it altogether once earnings reach a mere $36,000. That penalty would remain in effect even if Rangel’s proposal became law.
The system, in other words, implicitly discourages marriage. And that’s bad policy, since a big problem today for low-income households—and particularly for children in such households—is low marriage rates. More than half of 22- to 30-year-old men earning more than $60,000 are married, compared with just 12 percent of those earning less than $10,000. Yet many of those unmarried men are nonetheless fathers—or, in the dry parlance of social science, “non-custodial parents.” Many neither visit their kids nor make required child-support payments.
The fix here is simple: let low-wage workers file individually, even if married, and thus keep their tax credits. Rangel’s reason for increasing the EITC for single men may be the hope that they will become likelier to make child-support payments and visit their kids. (There is some evidence to support this presumption.) But an even more desirable outcome would be fathers’ marrying in increasing numbers. After all, low-income children need more than cash—they need their fathers. If those fathers are working, that’s even better.
Rangel’s sin of omission is surprising, because New York City mayor Michael Bloomberg’s Human Resources Administration had given him some political cover by proposing to him an “enhanced EITC” that “could increase the marriage rate by valuing marriage, not penalizing it.” It noted that, after improvement in the years following welfare reform, the “decline in [the city’s] child poverty rate has slowed down and the contribution of [low-income, unmarried] fathers in their children’s lives has been mostly absent.”
Rangel’s proposal is gaining little traction so far; Hillary Clinton has pointedly declined to endorse it. Even so, it could be a leading indicator of what a 2009 Democratic tax plan might look like. And if we’re going to hike taxes to support a larger EITC anyway, it only makes sense to encourage marriage in the process—a step that might actually make the tax hike worth the money.