When Times are Tough, Tax Credits Are Not Enough

Biden’s anti-poverty plan is to expand tax credits—but that doesn’t address the root problem of low (or no) wages.

Premilla Nadasen

Biden expanded the Child Tax Credit and the Earned Income Tax Credit. Are they the best way to lift people out of poverty? Illustration by Kim Ryu

President Joe Biden’s $1.9 trillion American Rescue Plan expands two tax credits for parents and low income workers — tax credits being the go-to method to rescue” Americans from poverty for the past several decades. But as much as poor people need that money, tax credits still fail to address fundamental problems: Not everyone can work, and work often doesn’t pay a living wage. 

The expansion of the Child Tax Credit (CTC) will include more money for poor families with children. The expansion of the Earned Income Tax Credit (EITC) makes more working, childless people eligible for more federal money. 

First enacted in 1975, the EITC was conceived as a way to get people in low-paying jobs off welfare, which faced pushback premised on racist arguments that stereotyped African American and other women of color as lazy. The conversation presaged the 1996 demolition of welfare in favor of the Temporary Assistance to Needy Families (TANF) program, a welfare to work” model that attaches work requirements and a five-year lifetime limit to benefits. With its asinine rules, constant hurdles and meager monthly assistance, TANF has been of limited benefit to the poor (though huge sums of TANF funding have been spent on such assistance” as marriage classes).

Meanwhile, tax credits like the EITC deflect from the real problem — low wages. Why should the government provide a subsidy for working Americans? Why aren’t workers paid enough to not live in poverty in the first place? The seeming contradiction between a booming stock market and stagnating wages is not a contradiction at all; low wages are simply more profit for shareholders. The EITC then serves as a taxpayer-funded subsidy for cheapskate employers. Subsidizing low-wage work doesn’t solve the problem of low wages; it encourages the expansion of low-wage work. 

One clear solution is to raise the minimum wage. Although the $15 wage didn’t make it into the American Rescue Plan, progressives have not given up the fight. 

But even a higher minimum wage doesn’t account for those unable to work. The EITC emphasizes earned income.” The marginally employed — those who seek work but can’t find it because of racism, lack of training or education, discrimination, illness, a history of incarceration or household care responsibilities — receive no EITC benefit. We need a sturdier safety net for them. 

Obscured, too, in all this discussion about jobs and tax credits, are the workers (often underpaid or unpaid) on the other side: the household labor to care for the young, the elderly, those with disabilities. Both welfare rights activists in the 1960s and Wages for Housework” movement activists in the 1970s insisted that household labor and child care — for one’s own family or another’s — should receive a living wage. Undocumented care workers are especially vulnerable to exploitation (and yet undocumented workers were all but shut out of pandemic relief). 

With the pandemic shutdown of schools and day cares, America is finally waking up to the essential” nature of this work. According to the National Women’s Law Center, more than 2.3 million women have left the labor market since the onset of the pandemic. 

The $775 billion Biden pledged for care labor on the campaign trail is direly needed but was absent from his American Jobs Plan (except for an expansion of home healthcare under Medicaid). 

The CTC begins to address this. It has no earnings requirement and allocates a generous $3,000 per child ($3,600 for children under 6) but its expansion is a timid foray that phases out next year (although Biden has called for an expansion to 2025 under his American Family Plan). A slightly better plan comes from a surprising quarter: The Family Security Act, from Sen. Mitt Romney (R-Utah), would allocate up to $1,250 a month for families with children. These payments are not tied to employment and do not require filing taxes, so function much like a universal basic income (UBI) for children. Although Romney’s plan would end federal funding for TANF, it has no mandates, less scrutiny and is more dignified. All in all, it is a better deal. Its major weakness: It does nothing for people without children.

The best long-term solution to poverty is a true UBI — or, at least, a guaranteed minimum income. The targeted and means-tested welfare system designed nearly a century ago was for an economy better equipped to ensure long-term stable employment for most Americans. Job insecurity, low wages, marginally attached workers, and an unmet need for child and elder care are features of today’s economy. Black, Brown and other communities of color have been especially hard hit by pandemic layoffs. Extreme poverty is on the rise. Tax credits and other assistance programs have lifted the working poor out of poverty, but not precarity. Many Americans are unsure if they will have a job next year. The moment feels ripe for a basic income. 

The stop-gap solutions offered by the Biden administration to jumpstart the economy may tide people over until the next crisis — but they will not resolve the deep-seated precarity of work and life that is a reality for many families today, one in which people never know when they might be laid off, evicted, unexpectedly need child care or receive an unpayable medical bill. 

We need an anti-poverty plan without conditions. One attuned to the challenges of our uncertain times. One that recognizes the paid and unpaid care work that so many people do. One not tied to age, personal status, employment or worthiness.”

For a response to this article, read ​“By All Means, Means Test” by Max B. Sawicky.

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Premilla Nadasen is currently a professor of history at Barnard College, Columbia University, where she is affiliated with the Barnard Center for Research on Women, the Women’s, Gender, and Sexuality Studies Program, and the Institute for Research in African American Studies. She is co-chair of the National Women’s Studies Association. She also serves on the editorial board of the following academic journals: Women’s Studies Quarterly, Souls: A Critical Journal of Black Politics, Culture, and Society, the Journal of Civil and Human Rights, and sits on the advisory committee of the New York Historical Society’s Center for the Study of Women’s History. Nadasen has given workshops and presentations for the Lower East Side Tenement Museum, the National Domestic Workers Alliance, the Ms. Foundation’s Economic Justice Program, the Department of Labor, and the New York State Labor Committee. Sponsored by history and gender and women’s studies. Women’s History Month event.
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