Even good public policy can be made better. That’s the case with Oregon’s Earned Income Tax Credit (EITC), one of the best tools the state has to lift up workers who are paid low wages. Despite the EITC’s excellent track record of improving the lives of working families, the credit falls short in important respects. Most glaringly, the EITC excludes certain low-paid workers on the basis of their immigration status or age — structural inequities that diminish its effectiveness.
We can do better, and the way forward is set out in a report by a workgroup convened by Oregon Governor Kate Brown tasked with studying how to improve the EITC. The workgroup, which I had the honor of chairing, recommended five reforms to make the tax credit for working families more equitable and impactful.
First, some basics about the tax credit. Congress established the federal EITC in 1975 as a way to supplement the earnings of low- and moderate-wage workers. Oregon followed suit in 1997, creating its own state EITC that mirrors the federal tax credit. For most who qualify in Oregon, the state tax credit amounts to 9 percent of the federal EITC. Decades of research confirm that the EITC is excellent public policy. It makes work more financially rewarding for workers, it improves the health of adults and children, and it improves the academic achievement and lifetime earnings of children from families that benefit from the credit.
But the federal rules that determine who can claim the credit — rules that Oregon follows — exclude certain categories of workers. To qualify, a person must be a at least 25 years old and no more than 64 years, unless they have dependents, in which case there is no age restriction. They also must be a U.S. citizen or have work authorization. These exclusions leave some workers and families, already struggling to survive on low wages, without a critical tool to make ends meet.
To address some of the main shortcomings of the EITC, the Governor’s workgroup proposed the following five reforms, listed in order of priority:
- End exclusion of people who file taxes using an Individual Taxpayer Identification Number (ITIN). Some 34,000 Oregonians use an ITIN. They are mainly undocumented workers who perform vital roles, often doing work considered essential during the pandemic, like harvesting and preparing the food we eat. Their children, most of whom are U.S. citizens, also lose out on the benefit of the tax credit due to the exclusionary rule.
- Provide to ITIN workers the value of their denied federal EITC, in addition to a state EITC amount. The exclusionary rule deprives ITIN workers not just of the benefit of Oregon EITC, but also the federal credit. Oregon can’t change the rules governing the federal EITC, but it can ensure Oregonians are treated equitably by also providing ITIN workers the full value of the federal EITC.
- Expand the EITC to younger and older workers without dependents. The federal rules determining who is eligible for the EITC reflect privilege-based assumptions about the economic circumstances of younger and older workers. Federal eligibility rules created decades ago envision young adults in college relying on support from their families, and older adults with enough retirement income to meet their living expenses. But many younger and older adults need to work to pay their bills. Oregon must not be blind this reality. We should allow all income-eligible adults, regardless of their age, the ability to claim the tax credit.
- Increase the credit amount for workers without dependents. Current rules provide a very small tax benefit for low-paid workers with no dependents. This is wrong. Your ability to support yourself in dignity should not depend on whether you have a child or other dependent.
- Boost the amount of Oregon’s credit for everyone eligible. At just 9 percent of the federal credit, the Oregon EITC is just too small. Nearly all states make more effective use of their EITC. A larger Oregon tax credit would better bolster low-paid workers and families.
Oregon’s EITC is good policy that should be made more equitable and effective. The Governor’s EITC workgroup report shows exactly how to do it.