Obameter #5: the Earned Income Tax Credit

The Earned Income Tax Credit is a complicated, rather obscure aspect of tax law that generally tries to reward low-wage workers or workers facing unusual challenges for being productive members of the workforce to the tune of several thousand dollars each. Wikipedia estimates the total cost at something like $36 billion (in 2004). It's pretty complicated, though, with various fade-ins and fade-outs for taxpayers meeting various criteria. One of the unintended consequences of the EITC is the so-called "marriage penalty" wherein two single people filing taxes separately will pay less in taxes than if they marry and file jointly. This is because being an unmarried worker was once considered a hardship, so they increased the EITC for single people.

During his campaign, Obama made a three-part promise relating to the EITC:

1. To remove the marriage penalty.
2. To expand the credit for taxpayers with more than 3 children.
3. To expand the credit for taxpayers without children.

The stimulus bill he signed in February accomplished the first two points, but ignored the third.

I've addressed tax credits before, concluding that "With a tax credit, you're paying less money because you're conforming to more governmental rules." I remain wary of tax credits as a way for government to buy obedience from us taxpayers but, just as before, it's hard to criticize government for creating an incentive to work. Maybe it's a little easier now, since it's the second tax credit doing that exact same thing.

One risk of government paying low-wage workers to work is that it makes low-wage work seem better than it is. It's better than paying people to quit, as a badly designed unemployment program potentially could, but I continue to favor tax rate changes rather than rules and regulations regarding how you live your life. How much simpler it would be if all these eligibility programs with their complicated qualifications and dependencies were replaced with a negative income tax rate on the lowest tax bracket! But government continues to favor complicated systems of eligibility as though more laws means better laws.

And for them it does. Job security for Washington insiders, IRS agents, private accountants, and other experts on the unnecessary complication legislators create. They promise to simplify the tax code to get elected, but it keeps getting more complicated. Plus, again, they're buying your obedience. There's something creepily authoritarian about that.

$3,600b 2009 Federal Budget

Previously discussed wasteful spending

Previously discussed worthwhile spending

Earned Income Tax Credit (total cost)

Given the ugly, complicated system Obama inherited, though, he did act to simplify it by removing the marriage penalty. I suppose that deserves my tentative, cautious approval. But this is the last government-paying-people-to-work tax credit that I'll be supporting. Employers are supposed to do that, not government.

A little reminder: every pixel on that dollar bill graphic stands for $150 million dollars -- about 40 times as much as the average American makes over the course of an 80 year career.