Office of the Press Secretary

For Immediate Release January 12, 2000


Today President Clinton Will Announce, in his Address to the Democratic Leadership Council, A New $21 Billion Plan to Expand the Earned Income Tax Credit -- A Key Part of His "New Opportunity Agenda." The President's proposal would expand the Earned Income Tax Credit (EITC) to provide tax relief for 6.4 million hard-pressed working families. The expansion will cost about $21 billion over 10 years.

Building on the Successes of the 1993 EITC Expansion. In 1993, the President signed into law the largest EITC expansion ever to provide a tax cut for 15 million working families while rewarding work and family. Today, the success of the EITC in reducing poverty and encouraging work is clear:

The President's Proposal Increases the Reward to Work and Family in Four Ways:

Here is How These Changes Would Increase the Reward to Work for American Families:


 Pre-1993 LawCurrent LawProposalIncrease
Married*; 2 children; $20,000 earnings$1,438$2,524$2,940+$416
Individual; 3 children; $15,000 earnings$2,331$3,577$4,116+$538
Married*; 3 children; $23,000 earnings$902$1,892$2,867+$975
*Both spouses must earn at least $725 to qualify for the additional credit for a married couple.


The President's Proposal Would Expand the Earned Income Tax Credit to Provide Tax Relief for 6.4 Million Hard-pressed Working Families. The average increase for families with three or more children is $544 and some married couples with three or more children could see as much as an additional $1,155 tax credit. The expansion will cost about $21 billion over 10 years. The four major provisions of President's EITC expansion are:

Expand the Maximum Credit for Working Families with Three or More Children By $500. The President's proposal would add a "third tier" to the EITC to expand benefits for families with three or more children. Very low-income families will get 45 cents for every additional dollar they earn -- compared to 40 cents under current law. This higher credit rate will increase the maximum credit for a family with three children in 2001 from $3,992 to $4,491 -- a roughly $500 increase. This proposed new "tier" of the EITC is important because 60 percent of all poor children -- 7.7 million children -- are in families with three or more children. Adding a third tier to the EITC would provide a tax break for 2.1 million low- and moderate-income working families.

Expand the Credit for Married, Two-Earner Couples. The President's proposal would allow married couples to earn an additional $1,450 more before beginning to have their EITC phased out. For example, in 2001 a married, two-earner couple with children would be able to earn up to $14,480 and still receive the maximum EITC, as compared to the $13,030 threshold under current law. The result of this provision would be to provide an additional $250, on average, for married, two-earner couples. This provision would benefit over 1.3 million married filers.

Increase the Reward to Work While Expanding the Credit for Families with Two or More Children. The third provision of the President's proposal would provide an additional tax break, and an additional incentive to work, for families with two or more children. Under current law the EITC for these families is reduced by 21.06 percent for each dollar they earn above the maximum threshold. The President's proposal would lower this phase-out rate to 19.06 percent -- a tax break for 5.4 million of America's hard-pressed working families.

Encouraging Savings Through Simplification. Under current law, 401(k) contributions and other forms of nontaxable earned income are counted as income in computing the EITC. For many families this means that if they increase their contributions to a 401(k) then they will see their EITC reduced. The President proposes to encourage savings for poor people by eliminating nontaxable earned income from the calculation of the EITC. In addition to encouraging savings, this step will simplify the EITC, and continue to increase compliance.


In 1993, the President Signed Into Law the Largest EITC Expansion Ever. The President's policy provided a tax cut for 15 million working families. For every dollar a very low-income working parent with one child earns, the EITC was increased from 23 cents to 34 cents (25 cents to 40 cents for two plus children). The maximum credit was increased by over $1,500. The income limit on eligibility was increased by about $3,700.

Nearly 19 Million Families Claim the EITC. In FY 1999, the total cost of the program was $30.5 billion. In 2001, the average credit for all claimants will be $1,680 and for claimants with children it will be $1,990. [Source: U.S. Department of the Treasury]

In 1998, the EITC Was Directly Responsible for Lifting 4.3 Million People Out of Poverty -- Twice the Number Lifted Out in 1993. Census Department statistics show that the EITC was directly responsible for lifting 4.3 million people out of poverty in 1998 - more than twice the number lifted out of poverty in 1993. The indirect contribution of the EITC to poverty reduction may be even greater given the evidence that the EITC provides a powerful incentive to work. [Source: Calculations using data from the U.S. Census Bureau.]

In 1998, the EITC Was Directly Responsible for Lifting 2.3 Million Children Out of Poverty. The 2.3 million children lifted out of poverty by the EITC include 600,000 African-American children and 600,000 Hispanic children. [Source: Calculations using data from the U.S. Census Bureau.]

Expanded EITC and Higher Minimum Wage Has Led to Large Real Income Growth For Hard-pressed Families. A working parent with two children earning the minimum wage in 1993 made $10,559 with the EITC (in 1998 inflation-adjusted dollars) -- well below the poverty line. With the 1993 increase in the EITC and the 90 cent increase in the minimum wage in 1996 and 1997, a similarly situated family in 1998 was above the poverty line -- making $13,268 -- a 26 percent inflation-adjusted increase in their standard of living.

Poverty Rate Fell To 12.7 Percent in 1998 -- Its Lowest Level Since 1979. The poverty rate has declined from 15.1 percent in 1993 to 12.7 percent in 1998 -- that's the largest five-year drop in poverty in nearly 30 years (1965-1970). There are now 4.8 million fewer people in poverty than in 1993. (In 1998, the poverty threshold was $16,660 for a family of four.) [Source: U.S. Census Bureau]

The Largest Five-year Drop in Child Poverty in More than Three Decades. While the child poverty rate remains too high, between 1993 and 1998, the child poverty rate has declined from 22.7 percent to 18.9 percent -- that is the lowest child poverty rate since 1980 and the largest five-year drop in nearly 30 years (1965-1970). [Source: U.S. Census Bureau]

The Poverty Rate for Children in Families with Three or More Children is More than Double the Poverty Rate for Children in One or Two-Children Families. Although the poverty rate for children in families with three or more related children has fallen from 32.3 percent in 1993 to 28.5 percent in 1998, this is still more than twice the 11.9 percent poverty rate for children in families with one or two related children. 7.7 million children in families with three or more children were growing up in poverty in 1998. [Source: Calculations by the Department of the Treasury using data from the U.S. Census Bureau.]


More Single Mothers With Children Are Working Than Ever Before. After staying essentially constant in the 1980s and early 1990s, the percentage of singe mothers aged 16 to 45 who work and receive no welfare has risen from 60.9 percent in 1992 to 75.0 percent in 1998. The percentage of single mothers who worked rose from 73.7 percent in 1992 to 86.6 percent in 1998. [Source: Calculations by Professor Jeffrey Liebman using data from the Bureau of Labor Statistics' March Current Population Surveys.]

According to One Study, More Than 60 Percent of the Increase In the Employment of Single Mothers Has Been Due to Expansions of the EITC. Bruce Meyer and Dan Rosenbaum find that 63 percent of the change in the employment of single mothers between 1984 and 1996 can be explained by the expansions of the EITC. [Source: "Welfare, the Earned Income Tax Credit, and the Labor Supply of Single Mothers." National Bureau of Economic Research Working Paper No. 7363. September 1999.]

Another Study Predicted That the 1993 EITC Expansion Would Induce 516,000 Families To Move From Welfare to Work. Stacy Dickert, Scott Houser, and John Karl Scholz found that the 1993 EITC expansion would induce 516,000 families to move from welfare to work. [Source: "The Earned Income Tax Credit and Transfer Programs: A Study of Labor Market and Program Participation." Tax Policy and the Economy No. 9, MIT Press: Cambridge, 1995.]

Another Study Shows that Increasing the Reward to Work, Increases Labor Force Participation. Nada Eissa and Jeffrey Liebman found that the EITC significantly increases labor force participation among single mothers, especially less educated women. [Source: "Labor Supply Response and the Earned Income Tax Credit." Quarterly Journal of Economics 111(2), 1996.]

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