An elderly person counts coins.
Shortly after Congress passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act, a large group of lawmakers asked Treasury and the IRS to prioritize sending economic impact payments to low- and moderate-income Americans.
That’s an important objective, and fortunately, there’s an easy way to target that group, should Congress decide to send a second round of checks in response to the economic downturn.
The earned income tax credit is an appealing potential avenue for routing immediate assistance to taxpayers who are on the cusp of economic hardship, including job loss, missed bills, eviction, and food insecurity.
Elaine Maag of the Urban-Brookings Tax Policy Center has championed this approach, and Congress should seriously consider it.
Building on the statutory framework and already collected information from the EITC is a better solution than some of the other alternatives because it’s a targeted approach that should be easy to administer and provide financial assistance quickly, Maag said.
In many ways, the recipients of the EITC are an ideal group for targeted aid during any economic downturn, and perhaps especially this one.
They had jobs in 2019, but they are generally in a precarious financial position and liable to find a job loss or reduced hours to be financially devastating, Maag said.
The EITC is an anti-poverty program for families with children, and it’s effective at keeping children out of poverty. Taxpayers must file returns every year to claim the credit, so the population that is eligible for it is well-defined, and since the credit is refundable, the IRS receives their bank information every year.
A form for the earned income tax credit.
In other words, the IRS knows how to find and deliver payments to the portion of the population that receives the EITC.
If Congress decides to send out another stimulus payment and direct it to the EITC population, the process would be relatively simple as far as big relief efforts go.
Maag estimated the cost of sending a second EITC payment this year at $70 billion. She noted that almost all of that would go to taxpayers in the bottom 40% of the income distribution.
Although it wouldn’t help everyone in that group, it could be supplemented by legislation targeted to people who rely on transfer benefits such as Supplemental Nutrition Assistance Program payments and Temporary Assistance for Needy Families.
The main drawback to using the EITC to deliver relief is that it would miss low- and moderate-income workers who don’t have qualifying children under the credit.
But directing aid to that group could be accomplished by expanding the payments to those taxpayers using the income, filing status, and investment income information that the IRS collects annually.
