The EITC is good policy worth improving

January 26, 2021By Janet Bauer

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: