President Barack Obama called for a focus on expanding “opportunity for all” in his State of the Union address Tuesday, marking Democrats’ latest efforts to combat income inequality. But the speech was light on new legislative proposals. In fact, aides conceded there was really only one: an expansion of the Earned Income Tax Credit (EITC) for childless low-wage workers.
The Earned Income Tax credit, a refundable credit designed to offset the cost of social security taxes and incentivize work, has primarily benefited poor working families since it was enacted in 1975. More than 27 million families and individuals received about $62 billion through the EITC in 2011, according to the IRS. Individuals with three children can earn a maximum credit approaching $6,000; low-income workers without kids receive a little under $500.
Obama wants to change that.
“There are other steps we can take to help families make ends meet, and few are more effective at reducing inequality and helping families pull themselves up through hard work than the Earned Income Tax Credit,” Obama said. “Right now, it helps about half of all parents at some point. But I agree with Republicans like Senator Rubio that it doesn’t do enough for single workers who don’t have kids. So let’s work together to strengthen the credit, reward work, and help more Americans get ahead.”
Each year the federal government has tweaked portions of the Earned Income Tax Credit, families have reaped the benefits. In 1993, President Clinton signed the largest EITC expansion, which allowed childless workers over 25 access to the credit and increased the credit for families with two or more kids and individuals with three. But ever since, childless singles have been largely left out. In 2009, as a provision of the economic stimulus package, the EITC was expanded for families with three or more children and married couples.
Expanding the EITC, for families and childless individuals, when paired with an increase to the minimum wage, has been touted as a way to curb both poverty and income inequality. But, not all are interested in expanding the credit. On the 50th anniversary Lyndon B. Johnson launching of the War on Poverty, Sen. Marco Rubio (R-Fla.) proposed replacing the earned income tax credit with a direct wage subsidy that would offer more cash to low-wage workers. Senior administration officials say the Rubio proposal, while not something Obama would endorse, could be a sign that Republicans are willing to consider an expansion of the EITC along the lines that Obama has proposed.
When it comes to executive actions Obama touted in his address, nearly all had already been announced, except for a so-called “starter” retirement savings account for millions of employees who don’t have employer-provided retirement planning. Obama only vaguely sketched out the savings account proposal in his speech, but will provide more details on the proposal in Pittsburgh on Wednesday. Senior administration officials said that just through the president’s executive action, employers will be able to provide simple and safe retirement accounts for their employees. Workers would be able to invest in safe Treasury bonds, and later transfer their retirement savings to a traditional retirement account.