Testing an Expanded Earned Income Tax Credit for Single Adults

Year 1 of Paycheck Plus

| Cynthia Miller, Caroline Schultz, Alexandra Bernardi

The gap between high- and low-income Americans has widened dramatically over the past 30 years. The share of all income going to the top 10 percent of families, for example, increased from 32 percent in the mid-1970s to nearly 50 percent today. Income shares increased most rapidly for the top 1 percent. Unfortunately, while incomes were rising at the top, they were falling at the bottom. Men without high school degrees saw their earnings fall by 20 percent between 1990 and 2013. Earnings for women with similar levels of education fell by 12 percent. These trends at the lower end reflect a changed labor market: People with less education are more and more likely to work in low-paying service-sector jobs, and wages have even fallen in the higher-paying jobs traditionally available to less-educated workers.

One proposal to address this erosion of income for low-wage workers has been to expand the Earned Income Tax Credit (EITC) so that it provides more generous benefits to all low-income workers, not just those with children. Started 40 years ago to offset payroll taxes, the EITC — a refundable tax credit given to workers with low to moderate incomes — has been expanded over the years to become one of the nation’s most successful antipoverty policies, helping millions of low-income workers with children. But it has offered little benefit to those without children.

What if the EITC for workers without children were increased to $2,000 and extended to provide benefits to workers earning up to $30,000 per year? Paycheck Plus simulates just that. This brief, the second in a series, provides an update on the Paycheck Plus demonstration, which is testing the effects of a more generous EITC-like earnings supplement for low-income single adults in New York City. It describes the implementation of the program during the first year and supplement receipt rates during the 2015 tax season. The brief also discusses the forthcoming test of Paycheck Plus in Atlanta, Georgia, which will provide evidence of its effects in a different context from New York City.