Warren Buffett was in the news again for suggesting that rather than raise the minimum wage, we should tackle the income gap through tax policy. Specifically, Buffett recommended modifying (likely expanding) the earned income tax credit (EITC).
The EITC is a refundable federal income tax credit targeted to low to moderate income working individuals and families. Refundable means that even if the amount of the credit exceeds a taxpayer’s liability, the taxpayer doesn’t lose the “extra” and is, instead, entitled to receive any overage as a refund. The amount of the EITC varies depending on income, family size and filing status but it can be pretty significant. A taxpayer with three or more qualifying children could be entitled to up to $6,143 – even if they owed no tax and had no withholding.
According to the Internal Revenue Service (IRS), last year, about 28 million taxpayers took advantage of the credit to the tune of $66 billion. The average credit was $2,400.
In addition to the federal EITC, 24 states and the District of Columbia offered EITCs in 2014. The credit is refundable the large majority of those states.
Proponents like Buffett say that the EITC gets money into the hands of taxpayers more quickly than traditional welfare programs; that’s statistically true since more families take advantage of the EITC than the Supplemental Nutritional Assistance Program (SNAP) or Temporary Assistance to Needy Families (TANF).
Critics call the credit confusing and an opportunity for fraud; that’s also statistically true since most billions of dollars are paid out for EITC in error every year.
So, today’s Fix the Tax Code Friday question is:
Is the EITC working for taxpayers? Should it be scrapped, expanded or something else?
