Extending the EITC is Hardly a Cure-All for America’s Working Poor

The news that the fiscal cliff deal would not extend the payroll tax cut that had been in place since 2009 was cause for disappointment among liberals and even investment banks.

The lower rate had boosted take-home pay for workers over the past several years, and its expiration has led to fears that demand for products and services in the economy will suffer, harming the still nascent economic recovery.

The deal did contain some good news for workers, however—tax credits that had been implemented or extended under the 2009 stimulus bill were extended for an additional five years. In particular, the preservation of the 2009 expansion in eligibility for the Earned Income Tax Credit means that workers with children earning up to will continue to receive up to $5,891, adjusted for inflation, over the next few years.

That this expansion was accompanied by an extension of the child tax credit, however, serves to highlight a point I made in a recent Basic Facts Brief (pdf; html) for the Scholars Strategy Network: income tax-based social policies designed to help the poor do little for poor, childless adults who work, particularly men. They also fail to help those for whom jobs are hard to come by—and a lack of available jobs for the least educated and skilled Americans has been a defining characteristic of the current economic downturn.

As I note in my brief, “Wage subsidies are an important part of fighting poverty in the United States, but they are not a panacea.” Commentators who focus narrowly on how changes in the tax code affect the poorest Americans often miss this crucial point.