The earned income tax credit (EITC) is a refundable tax credit—effectively a cash payment at tax time to people without income tax liability. Its aim is to help low-income workers offset employment-related expenses, such as payroll taxes and childcare. The EITC phases in at the first dollar of earnings up to a maximum and phases out fully at relatively low income levels, offering a work incentive for low-income people and proving to be an effective anti-poverty tool.
Congress originally designed the EITC for families with children, varying the amount by family size, but they created a small EITC with a maximum of approximately $500 (adjusting for inflation each year) for childless adults in 1993. Policymakers have periodically proposed expanding the childless EITC, and in 2021, they temporarily expanded it to a maximum of $1,500 through the American Rescue Plan (ARP). However, two recent randomized control trials (the gold standard of evaluation) found disappointing results for two pilot projects that pre-dated the pandemic and offered an expanded EITC to childless adults in New York City and Atlanta. The findings suggest that letting the temporary EITC expansion from the ARP expire was the best course of action.
Supporters of expanding the childless EITC want a policy to reverse declining labor force participation for prime-age adults, and childless men in particular—a problem that has only gotten worse in recent years. Research shows that the family EITC increased employment among single mothers and led to positive outcomes for children, suggesting that the same might be true of the childless EITC. In 2014, President Obama proposed expanding the EITC for low-income childless adults and justified his proposal by arguing:
- “Workers without qualifying children, however, miss out on these anti-poverty and employment effects of the EITC.”
- “For individuals at this formative stage of life, encouraging employment and on-the-job experience could help establish patterns of labor force attachment that would persist throughout their working lives.”
- “Many experts, including conservative economists, believe a more robust childless worker EITC could replicate these successes, and a UK tax credit available to childless adults did raise labor force participation among that group.”
A randomized control trial began in 2014 to test the impacts of expanding the childless EITC. The study offered 3,000 low-income childless adults up to $2,000 in an expanded EITC, compared to a control group who could still receive up to $500 in the regular EITC. Researchers conducted the original study in New York City and began a similar study in Atlanta in 2015 (where 2,000 childless adults were eligible for the expanded payments). Researchers published the results from the New York City study in 2018 and the Atlanta results in March 2022.
Contrary to predictions, the impacts of expanding the childless EITC were not nearly as strong as the family EITC. In New York City, there were only small effects on employment concentrated among women (in all three years of the study) and among the lowest-income men (in year three only). The program led to small increases in after-tax income (because of the payments), but the larger EITC payments did not increase earnings or hours worked for the group that could receive them. The availability of extra payments also did not reduce the overall poverty rate, though they did lower the rate of severe poverty (less than 50 percent of the poverty line). The program had little effect on self-reported health, but might have reduced depression risk.
To some, the small impact on employment for the lowest-income men in year three might make the program worthwhile. However, these results did not replicate in Atlanta. Researchers found that the availability of the extra payments had no effect on after-tax income by the second and third years, and had no impact on employment or earnings in any year. Unlike in New York City, the program in Atlanta did not affect employment rates for the lowest-income men, nor did it lead to employment increases for women. The only positive finding in Atlanta was that more people filed taxes.
Declining labor force participation among prime-age men should remain a concern for policymakers, but they will need better solutions than a childless EITC to address them. According to the Congressional Budget Office, making the temporary expansion of the childless EITC permanent after 2021 would have added approximately $135 billion to the federal deficit over 10 years. The evidence from these two pilot projects suggests that Congress should spend that money elsewhere, or not at all.
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