Sen. Patty Murray (D-WA), chairman of the Senate Budget Committee, has introduced new legislation to expand the earned-income tax credit. Sahil Kapur of Talking Points Memo reports that Murray’s “21st Century Worker Tax Cut” expands the program’s income eligibility range for childless workers, lowers the eligibility age to 21 from 25, and makes the EITC more generous for dual-earner households. The proposal closely mirrors a recent EITC proposal from the Obama administration, yet the president’s proposal did not include Murray’s dual-earner provision, which helps mitigate the marriage penalty.
A number of conservatives, including Sen. Marco Rubio (R-FL), have called for increasing wage subsidies for low-income childless workers, yet Rubio’s proposal is different in a number of respects. Drawing on Oren Cass’s “The Height of the Net,” Rubio envisions a more ambitious overhaul of anti-poverty programs, including TANF and in-kind programs like SNAP and Medicaid. So while Murray’s proposal has been characterized by some as a more generous version of the Rubio proposal, which speaks to the seriousness of Democratic anti-poverty efforts and the unseriousness of Republican anti-poverty efforts, the proposals are actually quite different, as the Rubio proposal is more far-reaching (and more complex, and destined to be more controversial). It is also worth mentioning that while Rubio opposes a sharp increase in the federal minimum wage to $10.10, Murray favors it. One of the goals of the EITC is to increase labor force participation among workers with modest skills; there is a widely acknowledged that while a minimum wage increase might not have an enormous impact on aggregate employment levels, it might lead to a shift in which semi-skilled workers increase their hours while some nontrivial number of less-skilled workers find themselves priced out of the formal labor market.
Moreover, Rubio calls for a federal wage enhancement designed to reduce the payroll tax burden. This helps address one of the central concerns conservatives have raised about the EITC, which is the danger of improper payments. Murray addresses the improper payment problem by doubling the penalty for tax return preparers. One could argue, however, that the underlying problem is that the complexity of the EITC effectively requires low-income workers to employ tax return preparers while a federal wage enhancement that makes use of the payroll tax system would not.
The pay-fors in Murray’s proposal focus on the corporate tax code: the first changes the tax treatment of stock options; the second changes the status of the foreign income of U.S.-based multinational business enterprises. It is not clear that either tax tweak should be outside of the context of a larger restructuring of the corporate tax.
All that said, Murray’s EITC proposal represents a marked improvement from what we’ve seen from Senate Democrats in recent months. It seems that Marco Rubio has led at least one of his colleagues to step up her game, which is all for the best. And Murray’s decision to take the marriage penalty seriously is particularly promising. The cost, at $144.9 billion over ten years, seems particularly manageable when contrasted with the $175 billion annual cost of the tax benefits for owner-occupied housing. Not surprisingly, I think Rubio is closer to the mark than Murray. But Murray has done us a service by advancing a serious proposal that has the potential to better the lives of a large number of workers.