House Ways and Means Chairman Dave Camp’s tax plan would produce winners and losers — and among the big losers are many families in which parents are struggling to raise their children on poverty wages. A mother with two children who works full time at the minimum wage would lose about $2,000 a year when the plan is fully in effect in 2018 as compared to how she fares under current policies.
The plan substantially redesigns both the Child Tax Credit (CTC) and the Earned Income Tax Credit (EITC). To be sure, under the redesign, working poor families with children would receive a higher CTC. But, the plan cuts the EITC deeply for such families, with the cuts reaching their full dimension in 2018. And, combined, the CTC and EITC changes would leave many struggling working poor families worse off, pushing them into — or deeper into — poverty.
One can compare Chairman Camp’s proposals for the CTC and EITC to the current tax code in two ways. Policymakers expanded the CTC and EITC in 2009 and subsequently extended those expansions through 2017. One can compare the Camp plan to current EITC and CTC policies — or to the EITC and CTC policies that will be in place if these expansions are allowed to expire (unlike many other tax provisions that are regularly extended). Either way, many working poor families with children would lose out.
- A mother with two children who works full-time year-round at the minimum wage (earning $14,500 by working 2,000 hours at the $7.25 minimum wage) would lose about $2,000 in 2018 (when the plan’s changes in these credits would take full effect) compared to current policy — that is, compared to the CTC and EITC policies on the books today.
- That mother would lose nearly $350 compared to current law — that is, even if the CTC and EITC improvements of 2009 were allowed to expire entirely at the end of 2017, which itself would cause a substantial reduction in these families’ incomes.
The $2,000 loss would mean a drop of about $1 an hour compared to what a minimum wage worker receives under current policy from wages and tax credits. Republicans also have made clear that they would not alleviate the problem by raising the minimum wage.
The Camp plan’s sharp hit on these working poor families is especially stunning given that many Republicans, in opposing any minimum wage increase, have said the EITC is a better way to help people working for low wages to make ends meet. It’s hard to see how Republicans reconcile their criticisms of the poor for not working enough, their opposition to raising the minimum wage, and, now, a proposal to sharply cut the EITC.
A basic test for tax reform should be how it treats working-poor families. The 1986 Tax Reform Act passed that test with flying colors, easing working-poor families’ tax burdens and increasing the EITC. For many working-poor families, the Camp plan charts the opposite course. It fails this test.