A Federal Cost-of-Living Refund:
Federal Credit Examples for particular individual circumstances
Economic modeling of the plan
ITEP modeling: Impacts, comparison to Trump tax cuts, state data, and comparison to other credits
Urban Institute/Tax Policy Center analysis of the Cost-of-Living Refund
Urban Institute/Tax Policy Center report on modernizing the EITC
How it Works on a Federal Level:
Bases credit on number of workers: $4000/yr for single or $8000 for married filers, a substantial boost over EITC for most.
Eliminates most filing errors by decoupling credit amount from number of children.
Phases in quickly to fight deep poverty.
Reaches into the middle class, to reduce financial instability: up to $90K income for couples, $50K for single workers.
Broadens eligibility to all workers age 18+, including "childless" workers without dependent children.
Expands the definition of work, covering family caregivers and low-income students.
Creates an option to get the benefit monthly, smoothing income volatility.
Increases access through simplified, automated filing.
A Cost-of-Living Refund builds on the EITC to slash the poverty rate. Far broader than simple technical tweaks to the EITC, this is a bold idea to help rebuild the middle class:
Benefits half of Americans. 153.7 million people would benefit from the Cost-of- Living Refund, according to a Tax Policy Center analysis. It would cut poverty by nearly a third--2.5x the poverty impact of the current EITC.
Reaches low-income AND middle-class families, including "childless" workers. This plan lifts 14.7 million people out of poverty while also supporting people in the middle class who desperately need financial stability. Because people of color and rural residents have higher levels of poverty, it provides a significant boost to these communities.
Expands benefits by $2.5 trillion, paid for by taxes on the wealthy and corporations. The Urban Institute estimates the 10-year cost at $2.5 trillion. Taxes on the wealthy and corporations would fund the Cost-of-Living Refund. Policymakers have many options, including a wealth tax, repealing the Trump tax cuts, raising taxes on income over $250,000, a financial transaction tax, and closing capital gains loopholes.
Excites voters seeking new economic solutions. This policy polls over 70%, and remains popular with voters even after negative arguments. It is particularly popular with the Rising American Electorate and other less-likely voters.
Complements a $15 minimum wage. The minimum wage sets a solid floor for low-wage workers, preventing potential wage decline. Gene Sperling says, "An EITC for All increase together with raising the minimum wage to $15 an hour could be a powerful one-two punch in moving more workers and working families toward a true living wage."
Smooths volatile incomes with a monthly credit. Workers can opt to receive their benefit paid out monthly, helping stretch budgets til the end of the month or allowing them to build a savings cushion.
Responds boldly to the Trump tax cuts. In contrast to the Trump tax law that dramatically benefits the wealthy, the Cost-of-Living Refund would cut taxes instead for working people. For policymakers looking to protect the middle class, this policy does the job and draws the line in the right place.
Offers a progressive answer to future of work questions. With 40% of workers now in the gig economy, part-time jobs, or other contingent work without stability, it’s important that those with precarious work lives have financial stability. A Cost-of-Living Refund can also soften the blow of the transition caused by the impact of automation and artificial intelligence on American jobs, or help workers afford time to gain new skills.
Alongside higher wages, affordable health care, better working conditions, high-quality public education, and robust public services, a guaranteed income for working Americans can put cash in their pockets every month and stabilize families’ economic lives. We can help people make their way in this economy and begin to address the racial income gap.