An Age Cap in the Tax Code Harms Older Workers

En español | A couple years ago, as the Covid-19 pandemic rampaged through the U.S. economy, Congress took an important step to help low-income seniors: It made them eligible for a workforce incentive known as the Earned Income Tax Credit (EITC).
 
For the first time, low-wage workers older than 65 (as well as those under 25) without dependent children could take advantage of this important tax break. In some households, it is worth several thousand dollars a year.

But the respite was brief, and the age barriers are back in place. Once again, the EITC is mostly or entirely out of reach for the oldest and youngest low-income workers without dependent children. This means that a 65-year-old whose income is exactly the same as a 64-year-old could be hit with a substantially higher tax bill.

 What a mistake. This not only amounts to a blatant form of age discrimination and inequity but a self-inflicted wound on the economy. Government policy should encourage work, not remove incentives for enterprising folks who can least afford it. 

Let me provide a little background. The EITC was first enacted in 1975 as a modest tax benefit for working families with kids. Eligible taxpayers get to reduce their tax liability by the EITC credit amount (which varies based on income and family composition). Initially, the credit was limited to $400, but it has changed over the years to keep up with the times. Moreover, the EITC is refundable, meaning that if the credit exceeds what taxpayers would otherwise owe, the government sends them a check for the difference.

The strategy has been embraced across party lines, with a recognition that it is a potent weapon against poverty and a sensible incentive to encourage work.

 Congress temporarily dropped the age restriction in a Covid-relief package known as the American Rescue Plan. But that policy lapsed at the end of 2021. As a result, more than 2 million workers aged 65-plus lost their eligibility for the tax credit. This has been a costly sacrifice for low-wage workers around the United States, including some 204,000 Black, 187,000 Latino, and 69,000 Asian Americans.

This was an unwise change, and it is contrary to public opinion. A March AARP survey found that 75 percent of adults supported removing the age cap that harms older workers, and this view was shared across the political spectrum. Among Democrats surveyed, 77 percent supported eliminating the cap; 74 percent of Republicans expressed the same view.  

It’s past time for our policymakers to catch up to the public and recognize that age caps have no place in today’s world. This EITC restriction should be permanently removed to reflect the economic realities of the 21st century.

For older adults, these realities include an array of challenges to retirement security. The Social Security full retirement age is rising toward 67. The decline of employer pensions, accompanied by a rise in defined contribution plans such as 401(k)s, has reduced people’s access to guaranteed income – and put more seniors at the mercy of volatile financial markets. At the same time, we’ve all seen how inflation can threaten people’s standard of living, particularly those living on limited incomes. 

For a great many people, the answer is to stay on the job and keep earning money. We know, for example, that half the boomer generation now expects to work past age 70, and that eight in 10 in that vast population group cite finances and lack of retirement savings as a key reason. 

Employers face their own set of realities. One is that older adults have become the fastest-growing group of workers. Employers of all kinds benefit when they can fill their openings with people who bring experience and social maturity to the workplace. 

For all these reasons, removing barriers to work should be a top priority. Doing so is an important strategy to help workers, employers, and communities while fostering sustainable economic growth at the local, state, and national levels. It’s also the right thing to do: Older Americans who choose to keep working should not be penalized based solely on their age. 

Frankly, it’s hard to believe that in the year 2023, this age cap remains in our tax code. It should be discarded once and for all. Doing so will only become more important as our working population continues to age. We hope that lawmakers hear the message.