When filing their tax returns this season, low- to middle-income families could find themselves with a financial boost, thanks to the earned income tax credit (EITC). The EITC, which is refundable, ensures that eligible workers receive a refund if the value of the credit is greater than the federal taxes they owe. However, experts are now suggesting that the EITC could be reformed to become more efficient and provide even greater assistance to Americans.

During a panel hosted by the Bipartisan Policy Center, experts deliberated on ways to improve the EITC, which contributes around $60 billion annually to workers and their families. JPMorgan Chase CEO Jamie Dimon emphasized the importance of the EITC as a means to elevate society, proposing that the wealthy be taxed slightly more in order to support an expanded EITC program.

Dimon argued that increasing spending on the EITC would result in greater financial support for households and communities, leading to improvements in areas such as food security and children's education. He also stressed that this additional income would be spent within local communities, thus benefitting the economy as a whole.

One suggestion raised to bolster the EITC involves eliminating the state and local tax deduction, which allows certain taxes paid to state and local governments to be deducted from federal taxes. Former Speaker of the House, Paul Ryan, supported this idea, highlighting the need to remove unnecessary tax breaks. Dimon echoed this sentiment, emphasizing the importance of streamlining the tax code.

The EITC, initially enacted in 1975 to combat stagflation, is now complemented by state versions of the credit offered in 31 states and Washington, D.C., according to the Bipartisan Policy Center. However, experts believe that the EITC could be made more effective by expanding eligibility criteria for childless workers, a temporary change that was implemented in 2021 in response to the Covid-19 pandemic. Additionally, adjusting the credit to include both younger and older workers could further enhance its impact.

Despite the potential benefits of the EITC, the Bipartisan Policy Center reports that approximately 1 in 5 eligible workers fail to claim the credit, leading to unclaimed funds. Additionally, the complexity of the credit's eligibility rules results in a high rate of improper payments. To address these challenges, Ryan suggested improving the technology used to administer the credit, enabling it to be incorporated into workers' paychecks instead of being received as a lump sum during tax filing. This approach would provide consistent financial support and simplify the process for eligible individuals.

Ryan also emphasized the upcoming opportunity to make necessary expansions and changes to the EITC, as several provisions in tax law are set to expire by the end of the next session of Congress. With improved technology and administrative systems in place, the EITC could reach more eligible workers while making adjustments to eligibility terms.

As discussions continue on how to enhance the EITC, policymakers and experts are hopeful that reforms can be made to better support low- and middle-income families. With an improved and more efficient system, the EITC could potentially alleviate financial burdens, improve economic stability, and promote the well-being of deserving American households and communities.