From the mid-1960s to the early 1970s, there was a great deal of discussion in Washington over the appropriate design for poverty reduction and reformation. The EITC was established amidst political debate over the Negative Income Tax (NIT)—a government guaranteed minimum level of income and the Office of Economic Opportunity’s answer to ending national poverty.
The appeal of the NIT was that there was no need for additional bureaucracy to determine eligibility. Pres. Lyndon B. Johnson, however, opposed the NIT in 1966 with no hesitation. He felt the initiative did little to encourage recipients in finding work. Although the NIT would not be adopted, the government launched nation-wide ‘social experiments’ in the late 1960s and early 1970s to examine the effects of an NIT.
In 1969, Pres. Nixon launched an a new initiative, an NIT called the Family Assistance Plan (FAP). While initially it garnered broad support, the FAP was eventually attacked by just about everyone – progressives for being not supportive enough and by conservatives for being costly and not requiring tougher work standards.
Currently one of the largest anti-poverty initiatives in the country, the EITC was enacted under the Ford Administration and was originally added to the Internal Revenue Code by the Tax Reduction Act of 1975. But before being added to the tax code, the EITC was a mere proposal designed in opposition of the FAP by Russell Long, the Chair of the Senate Finance Committee, in 1972.
Long formulated a program which included a large public service component and a work bonus equal to 10% of wages subject to social security taxation. The credit was made permanent in 1978 and the Tax Reform Act of 1986 enacted the first of a series of expansions.
As years passed, the credit began as a modest amount ($400 to low-income workers with children), but has been increased several times over the years.
The EITC became a permanent fixture of the Internal Revenue Code by the Revenue Act of 1978. Major changes to the EITC occurred in 1986, when the credit was increased and finally indexed for inflation (it had not been previously, diminishing its value over time); and in the 1993 budget bill, with a major expansion and President Clinton famously announcing that “we will reward the work of millions of working poor Americans by realizing the principle that if you work 40 hours a week and you’ve got a child in the house, you will no longer be in poverty.”
Since then, there have been some major party-line battles over tax credits and policy, including many relating to the EITC. In 2008, the American Recovery and Reinvestment Act temporarily expanded the EITC once again. In (very) late 2010, Congress approved a temporary extension of these expansions, which will expire at the end of 2012.
As of 2009, 22 states along with New York City, Washington, D.C. and Montgomery County, Maryland also offered residents an earned income credit.
A Brief History of the EITC