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Earned Income Tax Credit: Anti-marriage, Anti-work

Written By: Glenn Grothman  |  Posted: Tuesday, July 26th, 2011

            One of the more controversial provisions in the budget bill made minor changes to the Earned Income Tax Credit. Democrats are claiming that Republicans are raising taxes on the poor by putting small reductions into this program. A thorough understanding of the Earned Income Tax Credit, however, makes it clear that it is an anti-work, anti-marriage program that easily could have been reduced more.

            The federal government gives out their own, larger, Earned Income Tax Credit to people who work. They give a check of up to $5,666 to families with three or more children if they make less than $16,000 a year ($21,000 if married). The state currently adds a check of $2,436 to this amount. So, if you only work part-time or work for minimum wage you can get a combined check of about $8,139 when you file your tax return. As you make more money, the check is reduced so that single parents with three children get nothing when they make $44,000 a year and married couples get nothing when they make $50,000 a year. The credit is smaller with one or two children. The state and federal combined maximum credit for one child is $3,600, and for two children is $5,752. In Governor Walker's budget, the credit for one-child families was not changed. For two-child families, the maximum combined credit dropped from $5,752 to $5,698. For three children it dropped from $8,139 to $7,621.
            There are several problems with the Earned Income Tax Credit:
            First, it is misleading to call this credit a reduction in taxes. Most low income people pay no taxes. Seventy-seven percent of this credit does not go to reduce income taxes. It would more accurately be described as a gift.
            Second, while the budget Governor Walker just signed mildly reduced the credit, it is still the largest credit of all 50 states for families with three or more children. (The District of Columbia gives out a higher credit, and Minnesota provides a different type of credit which is not comparable.) Is it a good thing that we have the highest welfare benefits in the country? We are 12th highest for families with two children and tied for 19th for families with one child. Twenty-seven states have no Earned Income Tax Credit at all.
            Third, because of the generosity of the credit, it encourages fraud. In 2006 the federal government estimated that 30-percent of all Earned Income Tax Credit dollars went to people as a result of fraud. We could, I suppose, hire still more Department of Revenue agents to police around and look for unreported income or pretend children. However, this would cost even more money, and I don't like more government employees poking around in peoples' lives.
            Fourth, the credit discourages work. Since one's Earned Income Tax Credit (remember a maximum of $8,000 for two checks) is phased out between $16,000 and $44,000 as other taxes are phased in, it would cause one not to want to work much harder. Food Stamps, rent assistance, energy assistance, and health care assistance are also phased out as you earn more money. A good case can be made that if you have a child you'd be better off making $16,000 than $36,000.
            Finally, and most importantly, the Earned Income Tax Credit is anti-marriage, since a man in the house would (if he made $30,000 to $35,000) greatly reduce or eliminate the credit (also reduce the Food Stamps, rent assistance, etc.)
            This is one of many programs state and federal governments have that tell women it's financially foolish to get married, and marriage is our best weapon against child poverty.
            The only mistake Governor Walker made was to not reduce this payment more. For some Democrats to accuse me and other Republicans of raising taxes when we cut an anti-work, anti-marriage program is absurd. There are some deserving people for whom the earned income credit is helpful - it's hard to spend this amount of money and not do some good. But due to the overall negative message, I hope it is reduced in the future.

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