An Idea to Get America Back to Work—A One-Time Earned Income Tax Credit

By Clay Grubb
tax credit

Covid-19 devastated America’s workforce, and that devastation is now exacerbating issues with the global supply chain for all sorts of goods and products. To get people back to the workforce quickly, we must first ensure our work environments are safe. But then we also need to do more to create a sense of urgency for folks to get motivated. We should implement a one-time earned income tax credit to reward folks for getting back into the workforce quickly.

While we can debate how we got here, what is important is what we do from this point forward. Today’s total employment is 5 million persons fewer than the peak pandemic employment. As Paul Krugman puts it, “a significant number of workers seems ready to accept the risk of trying something different.” I propose a simple solution to give them a safety net and encouragement for trying that different job: a one-time, 90-day earned income tax credit, expiring March 31, 2022, that reimburses all Americans $1 for every $1 earned up to $2,500. This would be a “use it or lose it” program that could get us close to full employment in short order.

A one-time earned income tax credit would encourage and reward Americans for getting back to work, and would also help alleviate the significant risk of inflation. The combination of a limited workforce, jammed-up supply chains, and friction with our primary trading partner, China, has resulted in a 5.4% increase in the consumer price index over the past 12 months. This is the greatest inflation we have seen since 1990, which in turn led to a painful recession. We must take these inflationary pressures seriously or the Federal Reserve will be forced to increase interest rates, which would likely put us into another recession. As I have written previously, we need to quit tying money to behavior we don’t want to incentivize. Today we have too many Americans on the sidelines due to increased unemployment benefits that in many cases exceeded their earnings prior to Covid-19. Unfortunately, these benefits came with the restriction that Americans not work.

Instead, benefits should motivate the behavior we want to see. A good example of a subsidy done correctly was the $30 billion Save Our Stages legislation that my business partner, Dayna Frank, helped create and pass. The idea was to compensate venues for their lost revenue during the first year of the pandemic but not discourage them from reopening. The 2021 subsidy checks were unrelated to the venues’ ability to get re-opened and start earning money again. As a result, we were able to preserve many of our culturally significant music venues while encouraging the owner-operators to use their American ingenuity to generate new sources of income. I personally have appreciated the opportunity to enjoy live music this fall at some of these venues.

Just imagine how motivated people would be if they realized that you could immediately go to work at Target or Amazon, or even jump in their car and drive for Uber, before the end of the year and receive an additional significant refund on April 15. Nicholas Kristof and Sheryl WuDunn highlight the risk of having unmotivated Americans in their book Tightrope: Americans Reaching for Hope. The concept of giving people a safety net to try a new job could have numerous rewards, including folks finding new promising careers. Or even realizing that the grass isn’t greener and finding a greater appreciation for their old jobs.