The UBI, CTC, EITC, and the GOP

Writing in the Wall Street Journal, Robert Doar and Matt Weidinger, two scholars at the American Enterprise Institute (AEI), a conservative think tank, are lamenting the passage of the Democrats’ American Rescue Plan Act of 2021. They see it as the “Democrats’ stealth plan to enact universal basic income” because the “Covid stimulus would give checks to parents, with no strings attached.” They believe that “UBI for everyone is next.”

Doar is the president and Morgridge Scholar at the AEI. Weidinger “is the Rowe Fellow in poverty studies at the [AEI], where his work is focused on safety-net policies, including cash welfare, child welfare, disability benefits, and unemployment insurance.”

The American Rescue Plan Act (ARPA) is the third COVID-19 stimulus package passed by the U.S. Congress (H.R.1319). It was signed into law by Joe Biden on March 11, after passage in the Senate (50-49) on March 6 and in the House (219-212) on March 10 without a single Republican vote.

Among many other things, the ARPA extends unemployment benefits, increases the amount of unemployment benefits, makes $10,200 or less of 2020 unemployment compensation tax-free, makes student-loan forgiveness tax-free through 2025, provides a maximum “recovery rebate” (stimulus payment) of $1,400 per eligible individual, extends a 15 percent increase in food stamp benefits, expands the child and dependent care tax credit by making it fully refundable and increasing the maximum benefit, broadens eligibility for the Earned Income Tax Credit (EITC), and expands the Child Tax Credit (CTC) by increasing its maximum amount, making it fully refundable, and pays out a portion of it every month to eligible families.

The CTC was enacted as part of the Taxpayer Relief Act of 1997. Initially just a $500 nonrefundable tax credit, for the last few years the CTC can be worth $2,000 per qualifying child. $1,400 of the CTC is refundable; that is, claimants can owe no income tax and still receive a “refund” of $1,400.

A regular tax credit is a dollar-for-dollar reduction of the amount of income tax owed. Tax credits may reduce the tax owed to zero, but if there is no taxable income to begin with, then no credit can be taken.

A refundable tax credit is treated as a payment from the taxpayer like federal income tax withheld or estimated tax payments. If the tax credit “payment” is more than the tax owed after the regular tax credits are applied, then the “taxpayer” receives a “refund” of money he never actually paid in. Refundable tax credits are the ultimate form of welfare because they are payments made in cash like the TANF and SSI programs instead of payments made to a third party, like Medicaid, or deposited on an Electronic Benefit Card (EBC), as in SNAP (food stamps).

Thanks to the ARPA, for tax year 2020, the CTC increases to $3,600 per qualifying child younger than 6 and to $3,000 per qualifying child, 6 to 17. And not only is the CTC now fully refundable, starting around July, parents who are expected to be eligible for the tax credit will begin receiving $300 (for each child under 6) or $250 (for each child 6 to 17) in monthly payments and then claim the rest of the credit when they file their 2021 taxes next year. Single parents can be eligible for these payments if they earn $112,500 or less, while married couples can make $150,000 and receive them.

Doar and Weidinger are particularly upset about these expanded provisions of the CTC:

Universal basic income is about to arrive in America. Congressional Democrats’ $1.9 trillion stimulus bill provides for no-strings-attached checks, limited only to parents of children under 18. This UBI for parents is billed as pandemic relief, but its real purpose is to put a stake in the heart of work-based welfare reform.

Under current law, federal cash assistance to poor families flows through state social-services agencies, which require recipients to work, look for work, or at least engage in some activity designed to help them become employed. UBI for parents is designed to circumvent these requirements. If enacted it will more than double the government-provided cash assistance to households headed by single mothers, creating a perverse incentive for the unmarried poor to have more children.

The expanded CTC “functions almost exactly the way that guaranteed income functions, which is a predictable stream of income each month that you can rely on,” said Amy Castro Baker, an assistant professor at the University of Pennsylvania’s School of Social Policy and Practice. “This is the most exciting thing that has passed in decades when it comes to talking about poverty and justice, hands down,” she added.

Although the expanded CTC in the ARPA applies only to tax year 2020, congressional Democrats and White House officials have already indicated that they want the expansion to be made permanent.

About twenty-three countries, mainly in Europe, already provide some sort of payments to households with children on a regular basis.

But why should Republicans be opposed to this expanded CTC? They are, after all, proponents of the closest thing to a UBI — the EITC.

According to the IRS,

Enacted by Congress in 1975, the Earned Income Tax Credit or EITC is a federal income tax credit for workers who don’t earn a high income and who meet certain eligibility requirements. Those who qualify and claim the credit could pay less federal tax, pay no tax or even get a tax refund. You don’t need to have a child to claim EITC. Also, there are special rules for individuals receiving disability benefits and members of the military.

Generally, income and family size determine eligibility and the EITC amount you can receive.

Nationwide, as of December 2020, about 25 million taxpayers received about $62 billion in EITC. The average amount of EITC received nationwide was $2,461.

For tax year 2020, the maximum EITC amounts are:

$538 with no qualifying children

$3,584 with one qualifying child

$5,920 with two qualifying children

$6,660 with three or more qualifying children.

To receive the EITC, earned income and adjusted gross income (AGI) must each be less than:

$15,820 ($21,710 married filing jointly) with no qualifying children

$41,756 ($47,646 married filing jointly) with one qualifying child

$47,440 ($53,330 married filing jointly) with two qualifying children

$50,594 ($56,844 married filing jointly) with three or more qualifying children.

From 1979 to 2010, qualified workers could receive a portion of their EITC payments in their paychecks spread throughout the year, and then — just like the expanded CTC — receive the rest after they filed their tax returns. Employers would then recover the advances by an offset against their quarterly payments to the IRS of payroll and withholding taxes. Although the Advanced Earned Income Credit (AEIC) was available to workers as long as they filed a W-5 form with their employers every year, the utilization rate among claimants never exceeded 2 percent.

The EITC was introduced under a Republican president, Gerald Ford. It increased under another Republican president, Ronald Reagan — even though Republicans controlled the Senate for six years during the Reagan administration. The EITC skyrocketed during the Clinton years — even though Republicans were a majority in both houses of Congress for the last six years of Clinton’s presidency. It likewise increased when the Republicans had an absolute majority in Congress and the White House for more than four years under another Republican president, George W. Bush. And, most recently, it increased every year that Donald Trump held the presidency — even though Republicans had a majority in the House for two years and in the Senate for Trump’s entire term.

To be consistent, Republicans who criticize the expanded CTC because it resembles a UBI ought to be denouncing the EITC as well. But as we all know, consistency is the last thing that the GOP is known for.

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