GOP is cutting tax credit for poor begun by Nixon, expanded by Reagan Republicans hope to save $42 billion by 2002 from earned income tax credit

October 27, 1995|By Brad Snyder | Brad Snyder,SUN NATIONAL STAFF

WASHINGTON -- It's a welfare alternative favored by presidents from both parties. Conceived by President Nixon, implemented by President Ford and expanded by Presidents Reagan, Bush and Clinton, the earned income tax credit sends government checks to the working poor that usually exceed the taxes they pay.

Mr. Reagan called it "the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress."

Now, however, the program's bipartisan support is crumbling. Republicans, citing what they say is fraud and out-of-control growth, want to scale back the tax credit by tightening eligibility. They hope to save up to $42 billion over seven years to help balance the budget.

'Most effective program'

"It is the most effective program we have to encourage work and reduce welfare dependency, but that doesn't mean it's perfect," Rep. Bill Archer, the Texas Republican who chairs the House Ways and Means Committee, wrote in a recent newspaper article. "Simply put, the EITC is going to people with incomes that are too high."

But critics say they cannot fathom why Republicans want to shrink a program that seems to achieve a cherished conservative goal: keeping people off welfare.

"EITC makes work pay," said Rep. Kweisi Mfume, the Baltimore Democrat.

Under the Republican plan, working families near the poverty line -- people such as Leslie Drummond, a 41-year-old single parent from Lochearn -- would see their earned income tax credits shrink. Last year, Mr. Drummond says, he needed every bit of his $1,251 credit.

"It helped me pay my gas and electric bill," he said. "It helped me make repairs on my car. It helped me buy my kids school clothes."

It also helped Mr. Drummond, who earned $17,726 last year at the Carr Lowery Glass Co. in Westport, support two children and a granddaughter.

"As far as welfare, I would have nothing to do with it," he said. "I guess some people need it, but I'd rather work for my money."

According to their critics, Republicans want, in effect, to raise taxes for the working poor while cutting taxes for the wealthy. Curtailing the earned income tax credit, Democrats say, would push poor workers into poverty and swell the welfare rolls.

But some Republicans contend that the tax credit, which was designed to temporarily ease the burden of Social Security taxes, has evolved into a fraud-riddled, income-redistribution program that serves many who are not poor.

With 80 percent of its recipients receiving refunds that exceed the taxes they pay, the Republicans argue, the tax credit is actually a welfare program.

And they are intent on curbing its perceived excesses. Republicans would abolish President Clinton's 1993 expansion of the program to childless workers.

They would also count as income any money that families receive from Social Security, child support or disability. This would reduce their tax credits. Currently, 19 million workers who earn less than $28,500 a year -- excluding Social Security and other government benefits -- can receive the tax credit.

'Make over $50,000'

"You have a lot of people that make significant income that is not counted," said Sen. Don Nickles, the Oklahoma Republican. "A significant number make over $50,000 and receive the earned income tax credit. We're trying to get it to low-income people."

Mr. Nickles calls the tax credit "the nation's fastest growing, most fraudulent welfare program."

Born in 1975, the tax credit is expected to cost more in 1996 ($24 billion) than the main welfare program, Aid to Families with Dependent Children. The maximum family credit has increased, in the Reagan, Bush and Clinton administrations, from $500 to $3,110. Today, 14 percent of Maryland taxpayers -- about 345,000 workers -- receive some earned income tax credits.

The program's expansion, Republicans assert, has invited fraud. IRS survey in January 1994 found that 35 percent to 40 percent of tax credit filings contained errors, about half of them intentional.

The IRS has stepped up its enforcement, according to a spokesman, Frank Keith, by checking every Social Security number and aditing some returns before mailing tax credit refunds.

"If fraud is the problem, fix the fraud," Mr. Mfume said. "Don't ax the program."

According to the Treasury Department, the Senate plan, which is more far-reaching than the House version, would reduce benefits for 17 million poor working families. As a result, about 270,000 Marylanders would pay an average of $345 more in federal taxes by the year 2002, according to Treasury projections.

Maryland families with two or more children would pay an average of $475 more in 2002. About 70,000 of Maryland's childless workers would be eliminated from the program altogether.

The Republicans dispute the significance of the Treasury figures, contending that their proposed $500-per-child tax credit for families would offset the earned income tax credit reductions.

"All the families above $18,000 are going to be significantly better off under the Republican plan," according to Robert Rector, an analyst at the conservative Heritage Foundation.

But one-third of the poorest working families would not benefit at all from the $500-per-child tax credit, according to Isaac Shapiro, associate director of the liberal Center for Budget and Policy Priorities. That's because their income taxes are less than the $500 credit, which by law couldn't exceed what they owe in taxes.

House Speaker Newt Gingrich recently suggested that the earned income tax credit proposals and the $500-per-child credit could be altered in a House-Senate conference committee so as not to hurt any working families.

"They have the votes they need to pass it," Mr. Mfume said of the Republicans. "That doesn't mean we're going to roll over and play dead."

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