The Earned Income Tax Credit (EITC) is considered one of the most effective programs for reducing child poverty and promoting economic stability among low-wage families.
But there is a suite of benefits that is needed to support workers in their daily lives, like paid leave and minimum wage, that rely on a progressive tax system. So how do we support workers now while linking total compensation to tax policy?
Rachel Isacoff, Manager for the Equity & Economic Opportunity initiative at The Rockefeller Foundation, sat down with Dr. Darrick Hamilton, Director of The New School’s Institute on Race, Power and Political Economy, and Rebecca Dixon, Executive Director of the National Employment Law Project (NELP) to discuss how tax systems could be made more equitable for workers.
Rachel Isacoff:
Darrick, starting with the big picture, can you explain the role of tax policy in the social safety net and the linkages between tax policy and pro-worker benefits?
Darrick Hamilton:
Too often we think of the tax code as strictly intended for revenue collection. But of course, the tax code does a lot more than that. It should be aligned with the fiscal and fiduciary responsibilities of government, which would include economic inclusion, civic engagement, and social equity. It is perhaps our biggest fiscal tool.
We clearly have different rates in which we tax capital gains versus how we tax wages.
Well, that’s a choice. Similarly, when we think about refundable tax credits versus tax deductions – the implications on a fiscal budget are the same, yet the values we hold in the way we view them as different need to change. We need a new narrative and a new understanding.
And, even the way we talk about the tax code – my tax dollars – it is all reaped in language of deservedness and undeservedness – who deserves a tax benefit. And I dare say there’s a clear racial and class element in the discourse when we talk about who’s deserving and who’s not deserving.
Rachel Isacoff:
That resonates also with how we talk about corporate tax breaks. We call them tax breaks as opposed to paying a fair share. How can linking unfair wages to taxes highlight the relationship to poor worker benefits and hold corporations accountable in the public eye?
Darrick Hamilton:
That question is spot on because it fits into notions of deservedness and undeservedness, but also the engines of growth in our economy. We have this lexicon that somehow what’s good for the corporate sector will trickle down to all of us and lift all boats.
But the lived reality is that what some might label the neoliberal paradigm, that is the supply-side economic approach for the last 50 years, has not reaped benefits for the masses of people. It has led to a dysfunctional concentration of both wealth and political power in a way that’s anti-democratic and dysfunctional for us all.
Stimulus, and thinking about the tax code as a mechanism for stimulus, is indeed what government should be doing and thinking about. And what better way to distribute the stimulus than by promoting our most treasured resource like human flourishing and providing people with things like direct income so they can have greater agency in their lives.
Rachel Isacoff:
Speaking of guaranteed income, for the past few years, The Rockefeller Foundation’s economic policy strategy has been focused on the Earned Income Tax Credit (EITC) as a proven tool to lift people out of poverty. What’s the role of the EITC in offsetting taxes versus advancing equity?
Darrick Hamilton:
I would group EITC with the refundable Child Tax Credit (CTC). What they are is essentially negative income taxes. It ensures that low-income and working people can qualify and benefit from the tax code in a more equitable and engaged way.
The expansion of EITC and refundable CTC allows the tax code to reach low-income and working people to ensure that they have the resources they need to promote good, healthy environments for children. It’s not enough to just cut child poverty in half. Poverty is a blight. Why not end it all together? Why not extend EITC to those individuals that aren’t in the labor force? We can do better.
And I’ll just end my comment by quoting Ezra Klein, where I think he framed this up very well, he said:
“The American economy runs on poverty, or at least the constant threat of it. Americans like their goods cheap and their services plentiful and the two of them, together, require a sprawling labor force willing to work tough jobs at crummy wages. On the right, the barest glimmer of worker power is treated as a policy emergency, and the whip of poverty, not the lure of higher wages, is the appropriate response.”
Rachel Isacoff:
Rebecca, NELP has a number of policy priorities that are affected by the tax system. How is NELP thinking about and strategizing around these alignments?
Rebecca Dixon:
The main policy priority tied to our tax system is Unemployment Insurance (UI). UI works together with the tax credit programs to provide economic security, especially for low-income working parents who often don’t have savings to weather a job loss but are statistically more likely to experience it.
The UI program is not as effective as it could be. During the pandemic, Congress stepped in and added onto the program different categories of workers, particularly highlighting low-wage and gig workers. We saw that Congress added $600 per week, and later $300 per week, to the benefit amounts and actually expanded the length of benefit weeks.
These things were necessary because states have gutted their programs over the years. There is pressure with the unemployment insurance tax that employers pay. To put this in context, the tax that they pay represents less than $0.01 an hour of the wages that they pay workers.
So, what does that mean in practice?
It means in 2020, the average UI tax for an employer was $277 for the year. But because employers pay for the entire program, they also have the power in the states around the taxes for the program. What they do is push for lower taxes, and as their taxes are lowered, there’s not enough revenue in the system to have a robust program.
When you have a recession, you see the federal government step in to beef up the program. The states are supposed to build up tax revenue in a trust fund or savings account when the economy is strong, enabling them to have those funds available to pay substantial benefits when a recession (or pandemic) hits. But then as soon as the recession is over, the states who don’t collect good tax revenue in good times end up with a negative balance. And to get rid of that negative balance, you have two big options: to raise taxes or to cut benefits.
Because we know that employers hold so much power in the system, they end up cutting benefits and restricting access. Coming into the pandemic, we had a really weak UI program, with only 9% of eligible workers actually getting UI in some states. And that’s not accidental. The states designed their program so that it matched the small employer tax revenue. So we have to understand that these tax rates are really critical to getting families the support they need – UI should at least keep pace with wage growth.
Rachel Isacoff:
We have touched on the pandemic and all the hardship that it’s created and exposed. But NELP also had some wins and has done a tremendous job on progressing the UI system, as well as other policies.
Is there anything that you want to lift up that you see as a base to continue to build on in 2022?
Rebecca Dixon:
For the UI system, we did win amazing expansions of the program in the pandemic. Unfortunately those all came to an end, some prematurely this summer, in about half the states; and then later in September on Labor Day, ironically, the rest of them expired.
But what we do know is that by identifying the inequities that were built into the system where low-wage workers – and particularly Black and Latinx workers – are least likely to get UI, and changing the system and expanding it brought those workers into the system. And so we have the opportunity to build on that success – to be able to use that evidence to build a program that works for all workers and to fix it for good. So not to just fix it in extreme times, but to fix it so that it works well at all times.
Rachel Isacoff:
Darrick, anything you’d like to add?
Darrick Hamilton:
Yes, we demonstrated the capacity to send large sums of money directly to the American people in a relatively short period of time through the stimulus payments. So that notion from the IRS that we can’t do it, well we actually did do it. So that’s the silver lining. Another silver lining is the CTC. We started sending Americans direct support recognizing the need to provide resources for families with children.
And let’s put that in context. My good friend Dorian Warren has pointed out that last year was the 20th anniversary of welfare reform. We could not have imagined 20 years ago that the federal government would send money to people unconditionally – and we’re at that point. So that’s some progress, and what’s also useful is that it came out of Treasury.
Rebecca Dixon:
One of the things I think was momentous that we can build on is that, for the first time ever, Congress held a hearing and talked about their Fair Labor Standards Act and the workers who were left out of that, which are Black, Latinx and women workers.
The opportunity to raise the federal minimum wage is also the opportunity to abolish this racist sub-minimum wage for temp workers as well.
Rachel Isacoff:
In the last year we saw a lot of states considering how the stimulus payments could be a potential precursor to a state-level EITC or guaranteed income payments. Is there anything else that the unfortunate circumstances of the pandemic have proved that, as Darrick said, we are already doing that can build momentum for what’s possible to do next?
Rebecca Dixon:
I think for the first time in a long time, this pandemic has put the spotlight on worker health and safety. Historically Black and Latinx workers have always had the most dirty and dangerous jobs with the highest death rates.
On the one hand, you have the public saying, these are essential workers and we’re going to clap and bang pots. But on the other hand, we’re going to treat them like they’re disposable.
I think that has created the momentum for working people to say: “Enough. I deserve to have a safe and healthy workplace. I deserve to be able to raise issues about safety without retaliation.” And we saw a lot of state and local governments step up to the plate and actually create regulations and laws to protect workers during the pandemic. There’s opportunity with the current Occupational Safety and Health Administration for the federal government to use its power to protect workers, and momentum for states and local government to also step up.
Darrick Hamilton:
If I can build upon that, the term “essential worker” in and of itself is a euphemism. They came about because we were in a crisis and recognized that we needed this vulnerable work that was putting people’s lives at risk.
This recession was different. This recession resulted not just in a loss of jobs, but created a situation where for some people their job itself was not safe. What we understand is our measure of success is not just having a job, it’s having a job that provides decent wages, decent benefits, and the human esthetic of being able to engage with other human beings in a productive way. A job that is not undignified.
Rebecca Dixon:
In a good jobs economy, your race, gender, immigration or justice-involved status do not determine your fate. All jobs pay a living wage, and one job is enough to pay the bills and includes robust benefits. Workers are not commodities to be traded by employers, but are actively shaping the rules of the game.
Rachel Isacoff:
And with the political conversations lately about the CTC potentially have work requirements – it seems like we’re stuck in a system in which we’re asking people to put their lives at risk in order to receive government support, but we’re not supporting them, in turn, to be able to work safely.
In the field, there are seemingly disparate conversations happening around tax systems and pro-worker policies. What are the challenges and barriers of bringing people together to talk about both? Why do we tend to organize around them separately? And how can we pull together?
Rebecca Dixon:
First of all, these problems are complex. They are interlocking and multi-layered. So our solutions have to meet the moment. One of the things that I’ve been thinking about in terms of how we bring more of the work together is for the government at any level to set a goal to reduce the racial wage gap between Black women and white men by 25% by 2030. If we had that goal, we would make different choices to hold ourselves accountable to meeting it.
One of the big problems is that we don’t have any of these big goals, and we don’t have a central place to push for accountability. If we were all rowing in the same direction towards a big long-term goal that we could measure, that might help bring folks together around these different pieces that, though they are separate, are all interconnected. Like tax credits, UI, and labor law reform – we can map the connections and use incremental wins to build towards long-term structural change.
Darrick Hamilton:
I would begin with the point, and I’ll say it plain, economic rights are human rights. People, as a part of their human existence, need some base level of resources by which to engage.
Taxes become a tool to help implement economic rights. That’s the proper way to think of it. Similarly, health care is a tool to implement economic rights. Unfortunately, we have come up with a political notion that Treasury is some technical attribute that is for the smart people in the room that know what’s going on, and that those people that are interested in things like equality and justice should look to [the Department of] Health and Human Services and [the Department of] Labor. Not that we shouldn’t, but we absolutely should have a bull’s eye on Treasury, which is again perhaps one of the most fundamental aspects of government.
We know that as administrations change, legislation and actions out of Treasury tend to be more structural and less vulnerable to the cyclical nature of politics. I think it’s incumbent upon us that we put a bull’s eye on Treasury if we want to have a just moral and inclusive society.
Rachel Isacoff:
What a great vision. Do either of you have any last thoughts that you want to leave us with? Anything funders should do to help facilitate that conversation?
Rebecca Dixon:
I would say one thing for funders. The UI program becomes really popular when times are bad and short-term victories are on the horizon. But there also needs to be support from funders for us to build a coalition to have UI 2.0, as I like to call it, where it’s a program that works for all workers. And the work to do that has to happen even when it’s not a crisis. So we are really staying engaged with how we build toward a better system over time and how we make sure that when the next the next crisis hits, we actually have a program that can quickly get the money out the door, and the money is adequate.
I would also say that the tax code is very important in terms of reinforcing structural inequality. We need to really interrogate the tax code and whether we need to make changes to the tax code to build an equitable society.
Darrick Hamilton:
I would offer three points.
Commit to justice and the values of justice in an uncompromised way. Stick your chest out and be unapologetic when you do so.
Build a movement in order to achieve that vision of justice. In other words, facilitate engagement across organizations in a way that seeks common narratives, so that we cooperate rather than compete, and we have fellowship that builds trust.
And third, recognize that politics, economics, and identity group stratification – like gender and race – are always intertwined in our political economy. And history tells us that we have the answers. The answer is a commitment to people, in an anti-racist and anti-sexist way.
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