GOP’s Child Tax Credit: A Crown Jewel in Fool’s Gold : Budget: This congressional sham would intensify the disparity between rich and poor American families.

Part of the mantra of Republican congressional leaders is that the proposed child tax credit--often labeled the “crown jewel” of the “contract with America”--would provide $500 for every child in the nation except those in wealthy families. This is not accurate. No one should be lulled into thinking the benefits of the tax package are equitably distributed. Over the next five years, the wealthiest one-fifth of taxpayers would receive $38 billion more from the child tax credit than the poorest two-fifths combined.

The child tax credit is part and parcel of a congressional budget that would intensify disparities between high- and low-income families.

Such a budget is ill-timed. A recent international study of industrialized nations found that affluent U.S. families with children are better off than their counterparts anywhere else. But the study also turned up disturbing news: Poor U.S. families with children are poorer than poor families in 15 of the 17 other nations in the study. And census data issued shortly after the study’s release show that the gap between rich and poor in the United States has reached its widest level since the end of World War II.

Why would the child tax credit further widen the growing income gap? Because it is designed to offset federal income taxes. Since most low-income families owe no federal income tax, they would be ineligible for the credit.

But low-income families do pay other federal taxes, most notably Social Security and excise taxes. The “contract with America” unveiled during the 1994 election campaign recognized this; it included a child tax credit that could be applied against some Social Security taxes and consequently would have aided a substantial number of low-income working families. This year, the Republican Congress dropped this feature of the child tax credit.

Altogether, nearly half of the nation’s children, 44%, or 24 million, would receive no child tax credit or only a partial credit (that is, a credit of less than $500 per child) because they live in families with low or moderate incomes.

By contrast, many affluent children would receive the full credit. The credit does begin to phase out when family incomes rise above certain levels, but these income thresholds are set sufficiently high that relatively few children are affected. Only the 5% of children in families with the very highest incomes would not qualify for the full credit.

Largely as a result, the wealthiest one-fifth of taxpayers would receive an estimated $46 billion from the child tax credit over the next five years, while the poorest two-fifths would receive just $8 billion.

To make matters worse, Congress would cut an existing tax credit for many low-income families with children at the same time it was denying them the new child credit. The budget bill that Congress passed would substantially reduce the value of the earned income tax credit for millions of low- and moderate-income working families with children.

In addition, other parts of the tax package, such as large reductions in capital gains, estate and corporate taxes, are heavily skewed in favor of the wealthy. The richest 1% of taxpayers would ultimately gain more than $8,000 a year apiece from the congressional tax package, while many at the bottom would have their after-tax incomes reduced.

The budget cuts that Congress is making further exacerbate this trend; they too are stacked against families at the bottom. Programs targeted on low-income households would be reduced much more deeply than other parts of the budget, losing about $330 billion over the next seven years. The cuts in major assistance programs for poor families and individuals would be six times deeper than the reductions made in such programs in the early 1980s, when the Reagan cuts reached their deepest point. It now appears that the congressional budget package, including changes in areas ranging from welfare to food stamps to the Supplemental Security Income program for disabled children, would push 3 million people--about half of them children--into poverty.

Congress’ budget priorities are misdirected. Misleading characterizations of the child tax credit as providing “$500 for every child” should not obscure the significant extent to which congressional budget and tax policies would redistribute income from bottom to top and, in so doing, intensify child poverty.