Earned Income Tax

Hoping to take advantage of Maryland's record surplus, two key lawmakers are proposing to increase the amount of money returned to the working poor under the state's earned income tax credit program. Del. Sheila E. Hixson, who chairs the House Ways and Means Committee, said yesterday she will introduce legislation to refund more money to low-income families under a formula based on their federal tax return. "In a time when obviously there's so much money, the people who need it the most should benefit," said Hixson, a Montgomery County Democrat.

Montgomery County would become the first locality in the nation to provide earned-income tax credits -- essentially supplemental payments -- to the working poor under a proposal advanced yesterday by County Executive Douglas M. Duncan.Duncan, considering a run for governor in 2002, also called on the state to increase its tax credit for the working poor -- at a cost to taxpayers of up to $250 million a year -- and pledged that his county would match any increased payments for its residents.

WITH WELFARE reform reducing opportunities for public assistance and moving thousands of Marylanders into low-wage jobs, providing incentives for people to continue working is important.Those on the lower end of the income ladder can easily become discouraged: Wages for waitresses, janitors, sales clerks and the like are stagnant, and the working poor bear a greater share of regressive government imposts, such as the sales tax and the gasoline tax.The working poor are losing ground, even as the economy booms.

AS THE all-important budget conference committee gets to work in Annapolis, a paramount concern is the shape of this year's round of tax cuts.We urge conferees to come up with a consensus plan that gives taxpayers a break without jeopardizing Maryland's future fiscal well-being.It won't be easy. The Senate, with an eye on the election, wants to accelerate the 2 percent income-tax cut set for this year, giving voters a 5 percent reduction. That's a huge, and costly, increase.The House takes a more cautious approach.

WELFARE REFORM has swollen the job force with low-wage employees who, even if employed full time, are often referred to as the "working poor." The ready supply of such people has depressed wages for waiters, janitors, maids, retail clerks and others. They are learning that in this service-oriented economy, a job no longer guarantees a decent life.Yet the movement of people into the work force is a good thing. Morally, it is right to take responsibility for oneself. Besides, public assistance does not provide enough for families to escape poverty and dependency.

Seeking to share Maryland's greater prosperity with the working poor, several lawmakers and advocacy groups want to allow such families to cash in their earned income tax credits.Under a formula that considers family size, income and other factors, Maryland gives low-wage families a credit that reduces or eliminates their state tax bill. But unlike the federal government, if the credit is greater than taxes owed, the state does not send them a check.A proposal unveiled yesterday would allow them to receive a payment of up to 15 percent of their federal credit.

WASHINGTON -- The chief Republican tax writer in the House dropped a provision yesterday from his tax-cutting bill that had drawn heavy criticism from Democrats, saying he hoped the Clinton administration would offer a compromise in return and help avert partisan warfare over the plan.Rep. Bill Archer of Texas, who is chairman of the Ways and Means Committee, said he would delete a measure that would keep some low- and moderate-income taxpayers from receiving the full benefit of a proposed $500 per child credit if they also claimed a tax credit for child-care expenses.

Deficit budgets can serve a purposeThe Balanced Budget Amendment would deprive the economy of a powerful force that now automatically cushions the painful effects of business recessions.The federal deficit now automatically gets bigger in recessions and smaller in prosperity. This is because in a recession, tax collections fall and unemployment benefits rise, while in prosperity the opposite happens. This is exactly the right medicine. But if the budget had to be balanced every year, the federal government would have to cut expenditures in recessions and raise tax rates.

THE WAY the working poor are taxed in Maryland is, to say the least, bizarre. A typical family of four in Maryland (husband, wife and two children) with $22,500 of income (and both spouses working) will pay no state or local tax in 1996, making Maryland one of very few states to exempt taxpayers at that income level.But if husband and wife earn an additional $6,000, that couple, now with $28,500 of earned income, will pay about $1,300 in state and local income taxes. Instantly, they achieve new status: they're among the highest taxed families at that income level (if not the highest)

SEN. BOB DOLE has it about right when he says "there's nothing President Clinton would like more" than Republican acceptance of the extremist version of the flat tax advocated by his upstart rival, magazine publisher Steve Forbes. The Forbes proposal is a set-up for Democratic jibes that the GOP once again is trying to help the wealthy at the expense of the middle class.Actually, the flat tax deserves better. If carefully drawn to pass the fairness test, it would restructure the tax system to encourage production and savings rather than consumption.