The earned income tax credit (EITC), available to low-income working families, phases out as earnings rise. Because the phaseout is based on family earnings, it creates a marriage penalty, such that many couples are better-off if they are unmarried than if they are married. This penalty disincentivizes marriage between parents, contributing to a high share of children being raised by single parents.

Replace the EITC with an hourly wage subsidy to low-income working parents based on individual earnings. Today, parents’ combined EITC amount is sometimes smaller if they marry because the credits are based on family earnings, and parents’ combined earnings may be too large to qualify for the maximum credit amount. The proposed policy would increase their combined subsidy if they marry because both married parents would qualify for the subsidy based on their individual wages, while only the custodial parent would qualify if they are not married.