Feature Story

October 3, 2007

Improving Work Supports

From Economic Policy Institute:

Low-wage workers and their families face rising levels of economic insecurity.

Government "work support" benefits---such as earned income tax credits, child care assistance, public health insurance coverage, and housing assistance---can help low-wage workers close the gap between insufficient earnings and basic expenses.

In addition to the federal EITC, 18 states and the District of Columbia offer state-level credits, although in five of these states, the credit is not refundable.24 Nonrefundable credits offset the state income tax burden for some families but provide no benefits to families whose incomes are too low to owe state income tax.

For many low-income working families, child care is by far their largest work-related expense.

For example, an additional $500 in yearly earnings, from $19,500 to $20,000, can lead a family to lose $2,000 to $3,000 a year in food stamps.

Likewise, in some subsidized child care programs, there is a gradual increase in co-payments and then a complete termination of benefits when the family reaches an eligibility limit, which typically forces families to switch to cheaper care.

To address the various criticisms of existing tax credits, a number of analysts have proposed versions of a "working families tax credit."63 Although the specifics vary from proposal to proposal, common elements include combining the EITC, CTC, and dependent exemptions; further reducing marriage penalties; and increasing benefits for larger families.

Of course, increased work effort would likely increase the demand for child care assistance.

But when a family's gross income exceeds 130% of the poverty level---and it takes only an additional dollar of earnings to do so---the family loses its entire benefit.

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