Earned Income Tax Credit Help |
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Earned income tax credit help was first adopted in 1975, at Senator Long's instigation. Today, it is the federal government's largest cash-assistance program for low and moderate income families with children. It enjoys broad popular support, largely because, unlike welfare, you have to work to get it. But like any program,
earned income tax credit help has its problems. However, on the whole it's one of the big success stories of the past quarter-century, making life better for hard-pressed working families. Back in 1976 when it was first implemented, income tax credit help offered low-income working families with children a tax break equal to 10% of their earnings. Long, understood that tax breaks aren't much use to families that don't owe any income tax. So he made his earned income tax credit help refundable. By this, the IRS sends people a check for any credit help left over after they've cut their income tax to zero. As expected, this innovation proved a particular boon to his state of Louisiana, where nearly 23% of the taxpayers claim the earned income tax credit help, second only to Mississippi at 25%. As inflation raged in the late 1970s, the Democratic congress adjusted the earned income tax credit help to maintain its purchasing power. But in 1981, Ronald Reagan passed his huge corporate and upper-income tax-cut bill, and let earned income tax credit help languish. Soon, inflation eroded the credit help's value by a third. This loss that wasn't reversed until the 1986 tax reform act, when Democrats insisted on restoring the earned income tax credit help to its earlier level and indexing it for inflation, thereafter. The earned income tax credit help's biggest increase came in 1990 when the Republicans rejected George Bush's deficit-reduction program and forced him to negotiate exclusively with Democrats. After most matters were resolved, Bush wanted to sweeten the bill for his wealthy constituents with a capital-gains tax cut. The Democrats on the other hand, wanted a big earned income tax credit help boost, to offset the bill's regressive excise-tax increases on the poor. Finally, the Democrats prevailed, and the earned income tax credit help was almost doubled. Then, in 1993, Bill Clinton boosted the earned income tax credit help by about 25%. This improvement was coupled with Clinton's deficit-reducing tax increases on the wealthy, which did not find support among the Republicans. Eight years later, George W. Bush pushed through a tax package overwhelmingly tilted toward the rich. But like his father, Bush junior reluctantly accepted the congressional Democrats proposal, that low-income working families should get something as well, in the per-child tax credit help. As a result, the per-child credit help, like the earned income tax credit help, is now refundable. As a wage supplement, the credit help is quite powerful. In fact, 17 states and the District of Columbia have now augmented the federal earned income tax credit help with their own versions. These initiatives range from Vermont's refundable credit help (equaling a third of the federal amount) to Maine's 5% nonrefundable credit help. Overall, the earned income tax credit help is a great program. But it does have a problem: a strong bias against married couples. Consider, for example, a couple with two kids. If each partner makes $18,000 a year, as unmarried parents they can each claim credit help of about $2,000. But if married they are not eligible for earned income tax credit help. One cheap solution would be to allow only one credit help per household, and to base it on what the higher-income parent earns. Such restrictions, that were there earlier, were hard to enforce, and abandoning them made sense. Another solution to earned income tax credit help's bias against married couples would be to let married couples opt for the same tax credit help as those unmarried. This wouldn't be hard to administer, but would be very expensive. Given the practical, political and fiscal realities, could the earned income tax credit help's hefty cost be better spent on other strategies to help the working poor? Or should we rely more on a higher minimum wage than the earned income tax credit help, thereby shifting costs away from federal coffers and saving public resources for other uses? It is true that privatizing wage subsidies does have the notable advantage of not showing up in the budget. But a minimum-wage increase would likely fall short of the earned income tax credit help. It would directly help far fewer families than the earned income tax credit help, because most earned income tax credit help recipients make well over the minimum. Of course, that doesn't mean that the minimum wage shouldn't be increased. It should, but to complement the earned income tax credit help, and not as substitute. Russell Long may not have quite delivered his promise to make every man a king, but he left a bigger legacy for working families than he probably ever dreamed. |
