the national interest

Obama to Republicans: You’re Right, Let’s Expand the Earned Income Tax Credit

WASHINGTON, DC - JANUARY 28: U.S. President Barack Obama delivers the State of the Union address to a joint session of Congress in the House Chamber at the U.S. Capitol on January 28, 2014 in Washington, DC. In his fifth State of the Union address, Obama is expected to emphasize on healthcare, economic fairness and new initiatives designed to stimulate the U.S. economy with bipartisan cooperation. (Photo by Win McNamee/Getty Images)
Photo: Win McNamee/Getty Images

The Democrats’ big economic message of 2014 was supposed to be the minimum wage. A higher minimum wage polls extremely well, commands support from liberal economists (though not conservative ones), and was supposed to give the Party its best opportunity to change the debate from Obamacare implementation to the economic populism themes that helped President Obama win reelection.

Republicans, eager to shake off their royalist image, have insisted that they share the goal of raising wages for low-income workers, but merely object to the chosen method. The much better way to go about it, they insisted, was to increase the Earned Income Tax Credit, a wage subsidy for low-income workers. So now Obama is saying, okay, let’s do that, then. The administration’s budget proposes a major new expansion of the credit.

In theory, Obama’s proposal rides into Congress on an unstoppable wave of bipartisan adulation. In the wake of Obama’s State of the Union address touting a higher minimum wage, every corner of the conservative economic world has spent the last several weeks praising the EITC to the skies. “What is most disappointing about the president’s proposal is that the federal government has the option of using the much better Plan A,” wrote former Bush administration economic adviser Greg Mankiw last month, “It is called the earned-income tax credit.” Two economists at the American Enterprise Institute dismissed the minimum wage as “wrongheaded,” instead suggesting, “expanding the earned income tax credit is a much more efficient way to fight poverty than increasing the minimum wage.” Even such a right-wing purist as Stephen Moore of the Heritage Foundation joined the pro-EITC chorus. “Raising the earned income tax credit isn’t a bad idea, because it is tied to work,” he urged,” But this should be done INSTEAD of raising the minimum wage, not in addition to it.”

The American Action Forum, another conservative think tank, issued a report assailing the minimum wage and touting the EITC. It urged, “In addition to expanding the maximum credit available, policymakers could reform the EITC to increase the average credit received by childless workers.” Obama’s plan proposes exactly that. The maximum credit available to low-income workers without children, currently a paltry $500, would double, and the credit would apply to higher incomes, benefitting 12.5 million workers in all.

So now that Obama is agreeing to do what conservatives have been begging, Congress will quickly whisk this plan to the president’s desk, right? Ha, ha – of course not.

Photo: Ron Galella/WireImage

Republicans like Gerald Ford and Ronald Reagan traditionally supported the EITC as a tool to encourage work, by supplementing low-wage jobs. But over the last couple decades, as the Party has turned rightward, Republicans have more often than not cast the EITC as a giveaway to shiftless hordes. When they gained control of Congress in 1995, Republicans proposed cutting the credit. During the Bush era, conservatives increasingly grew concerned that low taxes on the working poor made them more favorable to big government – they drew benefits from spending but paid little or nothing for it, the popular theory held, making them natural clients for the welfare state. This analysis flourished during the Obama era, when Republicans grew obsessed with the unfairness of a tax code that let the bottom half off too easy. (The EITC cancels out income tax payments for the poorest workers, thus providing the major basis for the notorious 47 percent of Americans who pay no income taxes.)

The more recent wave of Republican support for the EITC owes itself to two things. First, there is a perennial pattern in which any time Democrats propose a higher minimum wage, Republicans re-discover the virtues of the EITC as a foil. Second, there is the current political moment of Republican economic reform, in which Republicans are now crafting campaign messages for 2016 designed to avoid the plutocratic trap that snared Mitt Romney. Marco Rubio recently proposed an idea to increase wage subsidies for the working poor, and Paul Ryan released a lengthy report assessing anti-poverty programs, which generally praises the EITC as an effective tool.

But both these factors also demonstrate why the GOP’s interest in the EITC is so fragile. The EITC plays the role here of a protective shield against populist attacks. Republicans may at some level believe their own defenses of the program, which appear at those moments when it is needed to assail the minimum wage and then predictably disappear. What’s more, actually enacting such a plan would destroy its value as a Republican campaign proposal. A proper Republican anti-poverty proposal can’t be something that Obama has endorsed, let alone something he’s already signed into law.

The ultimate trouble is that the EITC costs money. And when you get into the gritty reality, Republicans are not willing to devote resources to it. Republicans would never agree to expand the EITC by simply adding the cost to the budget deficit. (Rubio, when asked about his proposal to more generously wages for childless workers, replied that his plan would not add to the total cost of the EITC, which means it would come out of the hides of poor workers.) Obama proposes in his budget to offset the cost by closing tax deductions for the rich, but obviously Republicans would never agree to that either.

In theory, the two sides might agree to combine the mutually agreeable EITC expansion with Obama’s compromise proposal to scale back cost of living increases for Social Security recipients. But this sort of bargain presupposes a functional Congress with an incentive to engage in cooperative lawmaking. All the incentives push in the opposite direction. And so, in the end, Obama’s embrace of Republican proposals to expand the EITC will likely wind up serving the sole function of calling their bluff.

Obama to GOP: You’re Right, Let’s Expand EITC