Bush Plan Leaves Tax Relief for Poor in Slow Lane

By: Jonathan Nicholson

While the Bush administration's economic plan would speed up a variety of tax breaks, it would not accelerate two tax changes that experts say would greatly aid the nation's working poor.

The provisions, an expansion in the amount of the child tax credit the poor can claim and a more generous limit for the earned income tax credit, could provide substantial help to lower-income workers without adding much to the package's $695 billion price tag, according to Len Burman, co-director of the Urban-Brookings Tax Policy Center.

"It would make a huge difference", said Burman, who also served as Treasury's deputy assistant secretary of tax analysis in the second Clinton administration.

According to Burman's calculations, about 9.3 million tax filers would get an average $354 if the two provisions were sped up, as has been proposed with most of the rest of the tax-cut package approved by Congress in 2001.

'Good Enough Today'

Earlier this month, in an appearance in Jacksonville, FL, President Bush said speeding up the tax cuts in the 2001 tax package would boost the U.S. economy. "If it's good enough for five years from now, it is good enough today", he said.

The proposed accelerations in income tax cuts, child tax credits, and standard deductions for married couples filing jointly are aimed at 92 million "taxpayers", according to the administration.

But each year, the Internal Revenue Service processes about 130 million tax filings. About 30 million, according to Burman, come from filers with little or no income tax liability who instead stand to get money back from the government as a way to offset Social Security taxes they paid.

Workers with no income tax liability, until 2001, were not allowed to take advantage of a relatively new feature of the tax code, child tax credits. Under the 2001 tax cuts, the tax credit was made partially "refundable", allowing workers to claim up to 10% of earned income over $10,500.

While the administration has proposed speeding up the increase in the child tax credit's value, to $1,000 from $600, it would do little to help those already restricted by the refundable limit, which was not proposed to be accelerated.

The 2001 law also proposed gradually raising the amount of income the government would allow before a tax filer is no longer allowed to claim the Earned Income Tax Credit.

Congress created the EITC in 1975 to help working low-income families and individuals deal with the tax bite from Social Security taxes. Eligibility for the credit depends on family size and income.

Under the 2001 tax package, the income amount for the maximum credit rose by $1,000 in 2002, and was scheduled to rise by $2,000 in 2005 and $3,000 in 2008. The White House did not propose accelerating the 2005 and 2008 changes in the economic package unveiled in January.

According to Andrew Lee, a research assistant with the Center on Budget and Policy Priorities, a liberal-leaning Washington think tank, raising the income for the maximum credit would increase the amounts some EITC recipients would get and the hike the number of recipients able to claim the maximum EITC credit.

A hypothetical married couple with two children and earning $20,000 annually would be eligible for $3,094 under current law, he said. But if the EITC phaseout was fully accelerated, they would be eligible for $3,515.

'A Bit Unfair'

Given the proposed accelerations elsewhere in the tax package, both Lee and the Tax Policy Center's Burman said it was troubling the administration did not also want to speed up the benefits for low-income workers.

Burman wondered if the administration was holding back on the proposals in the hopes of using them as a bargaining chip in later negotiations with Congress.

The cost, he said, would be about $9 billion over 10 years. That's a little bit more than another budget proposal, to allow $500 in unused benefits in workers' medical spending accounts to be carried over to the next year. That idea would cost about $8.39 billion from 2003-2014.

A Treasury spokeswoman did not return requests for comment on the issue.

"It seems a bit unfair", said Lee. "It seems like they have this aesthetic about only targeting people who have income tax liability." Lee said the programs are aimed at rewarding work, particularly the EITC, which is based on earned income.

"It's not like you're sitting around all day", he said.