US Affordability Crisis Demands a $4,000 Dividend for Workers

The IRS no longer will tax military members’ supplemental basic allowance for housing payments under Internal Revenue Code Section 134. This “warrior dividend” establishes a critical administrative precedent: The IRS can deliver targeted, non-taxable liquidity outside the standard filing season.

Meanwhile, targeted deductions—such as “no tax on tips” and the overtime premium exclusion—in the 2025 tax law prioritize liability reduction over liquidity enhancement. These provisions lower taxes at filing time but offer no immediate improvement in cash flow throughout the year.

With the House Republican Study Committee unveiling its “Reconciliation 2.0" framework to confront affordability, policymakers should apply the administrative framework of the warrior dividend to transform the earned income tax credit from a retrospective rebate into a prospective “labor dividend.”

Millions of workers face the paradox of high employment, yet the affordability of modern life remains out of reach. Even if Affordable Care Act premium subsidies are fully reinstated, deductibles are a challenge to meet and the cost of living outpaces wages.

To address this, Congress should enact what I’ll call the “American worker dividend.” This proposal would build on the bipartisan foundation of the 1975 EITC by reforming the credit into a dynamic $4,000 refundable mechanism. This figure would be pegged at 400% of the forthcoming federal saver’s match (SECURE 2.0) to create a closed-loop system of current stability and future security.

The economic logic was articulated by Warren Buffett in 2015: The market dictates the price of labor, but the government dictates the standard of living. By turning this insight into action, the worker dividend would raise the floor for a worker’s quality of life without affecting an employer’s hiring capacity.

This liquidity mechanism would apply to both W-2 employees and the self-employed, using modern data integration to avoid the recapture pitfalls of the repealed advance earned income tax credit, which largely failed due to low participation and high noncompliance rates.

For W-2 workers, it would use existing payroll data to offer a “safe harbor” advance—modeled on Section 24(j)—allowing employees to receive up to 50% of their credit in quarterly installments without fear of surprise tax bills.

But how do we pay for this in the gig economy that the IRS can’t always see? We start by closing the tax gap.

The gig economy remains a compliance blind spot for the IRS, but the worker dividend would create a financial incentive for voluntary reporting. Consider a gig worker who reports $15,000 in income and owes roughly $2,120 in self-employment taxes but would unlock $4,000 in the worker dividend. This “net positive” effectively would buy voluntary compliance, incentivizing workers to bring invisible income into the formal tax system.

Beyond liquidity, the worker dividend would address the “success tax” inherent in standard benefits, where a small raise can lead to a significant loss of government support. It mitigates this by tying eligibility to 300% of the federal poverty level, or approximately $47,880 in 2026 for a single worker.

Critics may argue this would expand the safety net deep into the middle class. They would be right—and it’s by design. The proposal would extend the phase-out to this level and reduce the benefit by only 10 cents on the dollar. This gentle slope would ensure the benefit doesn’t fully phase out until income exceeds $87,880. This buffer would guarantee a single worker earning $60,000 still retains $2,788 of the dividend, weakening the disincentive to accept a promotion or additional shifts.

To ensure equity, the worker dividend would implement a 1.5-times household threshold. Derived from the OECD equivalence scales, this multiplier is an economies of scale adjustment that recognizes a two-person household doesn’t have double the costs of a single person due to shared fixed costs. By tethering the phase-out threshold for married couples to the Organization for Economic Cooperation and Development’s scale, the tax code would align with the economic reality of shared living.

Needs for immediate liquidity often cannibalize future savings. To prevent this, the worker dividend would be split evenly between immediate needs and a restricted grant deposited directly into a new “civilian tier” of the federal thrift savings plan.

For the first time, private sector workers would gain access to the same low-fee, fiduciary-protected retirement plan enjoyed by members of Congress and the military, including the bedrock Government Securities Investment Fund. Because that fund offers a statutory guarantee of principal protection, it provides the necessary security for new investors.

By seeding these accounts in 2026, Congress would solve the “destination problem” for the federal saver’s match. Without a federal account structure, millions of lower-income workers could lack a qualified vehicle to receive the 2027 match.

To ensure feasibility, the proposal incorporates three critical firewalls.

• It would decouple the worker dividend supplement from the base EITC formula to protect the budgets of states and municipalities that peg their EITC to a percentage of the federal credit.
• It would use the dividend as a verification proxy to streamline the impending 80-hour monthly work requirement for Medicaid. Instead of forcing states to build costly new tracking systems, if a worker qualifies for the dividend via IRS income verification, they would automatically be verified for Medicaid, mitigating state-level administrative overhead.
• It would exclude the dividend from modified adjusted gross income calculations for federal benefits, to ensure receipt of the dividend does not disqualify workers from ACA subsidies.

Policymakers have a clear choice: Keep patching a leaking safety net with deductions that ignore cash flow, or finally build a modern floor to honor the dignity of labor in the US.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law, Bloomberg Tax, and Bloomberg Government, or its owners.

Author Information

Peter Gariepy is a CPA and serves on the Ladue School District’s Board of Education in St. Louis County, Mo.

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