Q: are Republicans loading their tax cut on the backs of the working poor?

0 Comments | Insight on the News, Dec 25, 1995 | by Kweisi Mfume, | Bill Archer

Mfume is a Democratic congressman from Maryland and serves on the Banking and Financial Services Committee.

Yes: The GOP budget is a case of Robin Hood in reverse.

When the House approved the Republican budget in November, some observers described it as the defining moment of the 104th Congress. But, while there are many programs on the GOP hit list, one in particular has put to the test Republican lawmakers' rhetoric about giving Americans a tax break.

To pay for some of their proposed tax cuts (most of which will benefit families making more than $100,000) the GOP voted to take $32.4 billion from the earned-income tax credit, or EITC, which provides relief for the working poor.

Under the Republican proposal this tax credit, which is intended to promote work over dependence on federal or state assistance, will be denied to childless families and will take into account Social Security and pension income for determining eligibility (thereby lowering the credit for many families). The Republican bill also will reduce the overall credit amount. This means that 13 million working families with incomes of less than $28,500 will see an increase in their taxes. At least 4 million of these families earn less than $10,000 per year.

Republican congressmen claim that the EITC program is "out of control," full of fraud and that it penalizes married couples, but the reality is closer to what President Reagan once called it: "one of the most pro-family measures ever put forward by Congress." When the EITC was conceived in 1975, its primary purpose was to increase the take-home pay of the working poor as an incentive to continue to work. Beneficiaries of the EITC mainly are lower-income families who are playing by the rules and trying to rely on themselves rather than government.

The EITC continues to operate as a refundable tax credit for the working poor. If phased in according to President Clinton's for 1996, the EITC would provide up to $3,560 in tax relief to families with two or more children and incomes under $8,900. For families with incomes above $8,900 but below $11,620, the credit would remain at the $3,560 maximum, declining gradually to zero for incomes between $11,620 and $28,524.

The EITC embodies principles dear to the hearts of both political parties. The Reagan, Bush and Clinton administrations have embraced the EITC as one of the most valuable antipoverty, pro-family, effective job-creation programs ever to come out of Congress.

The EITC makes work pay, encourages family formation, decreases dependency on public assistance and requires less bureaucracy than other federal-assistance programs. This form of tax relief does not stigmatize its recipients and is a formidable weapon against the national scourge of child poverty.

Most importantly, the EITC makes a critical difference in the lives of 21 million workers and families barely able to make ends meet. An earned-income credit for these households means young children have food on the table. A capital-gains tax cut for wealthy households, on the other hand, means more luxuries for the rich. The Republican Congress has chosen the latter course.

Republicans believe they are "saving" money by accelerating the EITC "phase-out" rate. In other words, for each additional dollar a family earns, they lose a larger percentage of the credit. Specifically, working families with two children would receive a credit if they make up to $25,425 rather than $28,553, as under current law. For families with one child, the credit would phase out at $23,055, rather than $25,119 as under current law. It also should be noted that the Republican proposal would deny a majority of these families any benefit from the $500 per child tax credit, which does not go to families who pay less than a certain amount of taxes each year, due to low income.

To justify slashing a program that promotes hard work and self-reliance, Republicans argue that EITC costs are out of control and that its fraud rates are too high. These arguments grossly distort the truth.

Regarding the issue of fraud, the solution is to fix the fraud, not ax the program. The Clinton administration and the IRS already have implemented measures designed to reduce the incidence of erroneous claims, amounting to savings of $2.3 billion this year alone. They have simplified instructions and eligibility requirements; they are scrutinizing Social Security numbers of all claimants and dependents; and they are denying benefits to undocumented aliens. Higher error percentages cited by Republicans come from outdated and misinterpreted data and do not comprise the latest antifraud initiatives.

Why is fraud suddenly sufficient reason to abolish a program anyway, as if the EITC is the only vulnerable program around? When the IRS began cracking down on claims for the dependent-care tax credit, for example, the number of those claims plummeted quickly as well. Let's talk real fraud. In 1992, the IRS estimated that for all nonfarm self-employed taxpayers, the gap between the amount of tax owed and the amount voluntarily paid, exceeded the entire amount budgeted for the 1996 EITC program. The fraud argument doesn't pass the logic test - should we obliterate the Defense Department because we've found waste and fraud there? Of course not.