Oakland Tribune

Friday, May 11, 2001

Move afoot to give working families child tax refund

By Lisa Friedman

WASHINGTON -- As Congress paves the way for hefty tax cuts in the federal budget, a movement to refund money to working families with children is gaining momentum in the U.S. Senate.

The proposal to increase the federal child tax credit would lift about 296,000 California children out of poverty, according to estimates from the Children's Defense Fund. Nationwide, the organization believes, a larger and refundable child tax credit would help about 1.8 million children.

"This is an effort to bring tax relief toward the middle and lower income brackets who do bear a gigantic burden, though not always in income tax," said David Lackey, a spokesman for Sen. Olympia Snowe, R-Maine, who is sponsoring the measure along with Rep. Chris Dodd, D-Connecticut.

The Senate Finance Committee plans to vote on the measure next week, and both advocates and lawmakers familiar with the legislation believe it will pass. The U.S. House of Representatives, however, is expected to be a tougher battleground and the White House has expressed little enthusiasm for making such tax credits refundable.

Still, said Joel Friedman, an economic analyst with the Center for Budget and Policy Priorities, "I think I am fairly optimistic."

Currently, families with children younger than 17 can claim up to a $500 in income tax credit per child. The provision was part of the 1997 Taxpayer Relief Act that Congress passed to help working parents with the burden of raising kids. Any family that makes less than $130,000 is eligible for credit.

President Bush has proposed doubling the credit to $1,000 per child, an idea embraced by Democrats and Republicans. He also wants families who earn more -- up to $300,000 -- also to be able to take advantage of the credit.

Democrats and some Republicans, however, want to massage the law to help more poor families. That's where lawmakers begin to part ways.

Snowe, Dodd and others claim 16 million children's families can't claim the credit, because they don't earn enough to owe federal income tax.

A couple with two children and a combined income of $20,000, for example, would owe about $120 in income taxes. The family might be eligible for a $1,000 credit, but could only use the $120 to zero out the tax bill. If the credit were refundable, advocates say, the Internal Revenue Service would send that family a check for $880.

Funding for the rebate would presumably come from the federal surplus, estimated by conservatives to be about $5.6 trillion over 10 years.

Yet the measure faces deep ideological resistance from conservative economists who say they are uncomfortable giving back money to people who pay little or nothing in income taxes.

"It would essentially be the same as a welfare program," said Chris Edwards, director of fiscal policy for the Cato Institute, a libertarian think tank.

"More higher income people pay a larger share of taxes," Edwards said. "There's a bit of a problem if the people at the top, who after all are the entrepreneurs and small business owners, are paying a bigger and bigger burden."

Edwards also noted that refund programs often lend themselves to fraud and abuse. And, he argued, the more special provisions added to the tax code, the more complicated it becomes.

Advocates of the refund, however, maintain their top priority is helping families at the bottom of the scale.

"This is supposedly to help families with the cost burden of raising children, and arguably that burden is far higher on lower income families," said Rep. Pete Stark, D-Fremont, who serves on the tax-oriented House Ways and Means Committee.

Recently, Ways and Means Chairman Bill Thomas, R-Bakersfield, pushed through some refund measures, but ones that advocates believe don't go far enough. Yet as for what the committee will decide in the months to come, Stark said, "what will happen is whatever Thomas decides he's going to make happen."

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