One of the biggest failures of our modern economy is that tens of millions of people work full-time—or more than full-time—yet live with constant financial worries because they still can’t afford necessities like health care, housing, healthy food, transportation, and education. That’s why our latest victory here in California is so encouraging. Governor Jerry Brown and the Legislature just finalized a budget that will substantially expand one of the state’s most effective tools to make work pay better: the Earned Income Tax Credit, or EITC.
The EITC puts money directly back in the pockets of families who need it most—those among us who often work the hardest but earn the least. The human impact on these families and their communities will be incalculable. I should know—when I was a kid, my family benefited from the federal EITC.
The way it works is simple: Low-income workers get money back from the government based on how much they earn, and how many children they have. This is a policy that should receive support from across the political spectrum, lifting families out of poverty while encouraging work, stimulating the local economy, and strengthening communities.
History has proven that the EITC is one of the single best ways to make work pay better for the tens of millions who don’t make enough to live free of constant financial worry. Over the past four decades, the federal EITC has lifted countless families out of poverty, improving their health and improving children’s test scores, academic attainment and economic potential. The EITC very precisely makes hard work pay better. It helps restore dignity to the labor of millions at a time when often even working three jobs is no longer enough to provide for a family.
These days, a staggering three in four American families can’t cope with a $700 emergency expense. They’re just one bit of bad luck—a broken wrist—away from financial crisis. For many who are struggling, the problem isn’t finding employment—it’s that jobs simply don’t pay enough anymore.
Consider what it means to work hard yet struggle to afford life’s necessities. The poverty line for a family of three in California is a little more than $20,000, which is about the salary of a worker earning the state’s $10.50 minimum wage. That comes out to a thousand dollars a month for mortgage or rent, about 20 bucks a day for food, and nothing else. And that’s just the high end of what’s considered poverty. Nearly a million California kids are growing up in deep poverty, in households with half that income—or less. That’s not simply a life without luxury, that’s a life of daily desperation.
Can you imagine raising two kids under those conditions? Many of us can’t. But that’s exactly what so many of our neighbors are doing.
When California’s EITC launched in 2015, it helped lift more than a quarter-million people out of deep poverty. But that was just a start. The income eligibility threshold was set so low that a single mother of two, working a minimum-wage job, would have earned too much to qualify for the EITC. And self-reported, freelancing income—the fastest-growing kind of income—was ineligible for the EITC.