Clinton to propose expanded income tax credit for working-poor families

March 23, 1993|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- To make good on his campaign promise that no working American with children should live in poverty, President Clinton will send to Congress this week details of a plan that would vastly expand an income-support program for millions of low-paid workers.

The president's chosen tool for helping working-poor families is the earned income tax credit (EITC), first introduced in 1975 as a temporary aid to ease the burden of Social Security payroll taxes.

It has since become one of the federal government's most effective anti-poverty programs, avoiding the stigma of welfare by focusing on helping only the working poor.

The Clinton proposal would help families like Anthony and Shonda Bodden and their two children, who struggle to make ends meet on his $900-a-month pay as an apartment doorman in Baltimore. It would nearly double the Boddens' $1,500 credit.

"The EITC was originally adopted as a work bonus, and it still serves that purpose," said the Congressional Research Service in a study paper of the credit this month.

The president plans to increase spending on the $11.41 billion program by $525 million this year, but his plan would expand the program to more than $17 billion annually in each of the next three years.

Mr. Clinton is also expected to heighten the income cut-off level, and extend the credit to poor workers without children.

"They are going to make it even better than they originally proposed," said one insider on the House Ways and Means Committee, which will hold a formal hearing on the proposal on March 30.

Details of the tax credit changes will be among the tax and spending proposals the administration will spell out to the House and Senate appropriations committees this week. They were broadly outlined last month in the document, "A Vision for Change in America," which accompanied Mr. Clinton's economic address to a joint session of Congress. His formal budget document will be presented April 5.

To strengthen the earned income tax credit as a work incentive, Mr. Clinton is also committed to increasing child care and food assistance for families, particularly through the Head Start and the Women, Infants and Children programs.

A recent study of the Clinton budget proposals by the Center on Budget and Policy Priorities came to this conclusion: "The Clinton budget can be regarded as a poverty reduction budget as well as a deficit reduction budget."

Targeted on work, the tax credit has historically enjoyed support from across the political spectrum, but in this cost-conscious year it is likely to arouse some concern that it runs counter to the main goal of reducing the deficit.

Critics of the credit say it is too complicated and fails to reach all the eligible recipients, because many low-income earners do not file tax returns. They also complain that as the credit is phased out between incomes of $12,200 and $23,050, the rate of benefit loss is effectively a tax increase on the poor, which could act as a disincentive to work.

"It's a good policy. I support it, but it's not a silver bullet," said John Karl Sholz, an expert on the earned income tax credit with the Institute for Research on Poverty at the University of Wisconsin in Madison. "It's not going to take all households, working full time and doing the right thing, out of poverty."

Last year $11.41 billion in credits were issued to 13.8 million low-income families, who received an average $822, according to the Internal Revenue Service. When the program started in 1975, $1.2 billion in credits went to 6.2 million families, an average of $201.

Mr. Clinton is now ready to advance the process another step, in line with his oft-repeated commitment: "We have to make sure that every American who works full-time with a child in the home does not live in poverty."

The central quandary for Mr. Clinton is how to help most low-income families without overloading the budget.

Currently, the maximum credit for a one-child family earning between $7,750 and $12,200 annually is $1,434. The maximum credit for families with two or more children in the same income bracket is $1,511.

Two small supplemental credits are available for children under 1 and for child health insurance. The tax credit is gradually phased out for incomes above $12,200 until it disappears altogether on earnings of $23,070 or more.

The Clinton proposal is designed to push a family of four with a single worker earning the minimum wage of $4.25 an hour above the 1993 poverty level of $14,773.

In the Boddens' case it would work like this:

Anthony Bodden, 24, earns $10,800 a year as a doorman. This qualifies him for the maximum credit of $1,511. He pays $826 in payroll taxes, leaving him with an income of $11,485. The Boddens also get $1,800 a year in food stamps, increasing their income to $13,285. But the family needs another $1,488 to rise above the official poverty rate. The Clinton plan is designed to bridge the gap.

"That would help a lot," said Shonda Bodden, 23, who is pregnant with her third child. "The bills just back up. There is only so much you can pay back."

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