Clinton Seeks to Expand Working-Poor Benefit

President Clinton called Wednesday for a $2-billion-a-year expansion in the only federal income tax break aimed at the poor--a tax credit for low-wage workers with children.

Clinton’s proposal to expand the earned-income tax credit, unlike many of his spending initiatives, was not dismissed outright by the Republican Congress. A spokesman said Ways and Means Committee Chairman Bill Archer (R-Texas) is willing to consider the proposal--despite concerns that as much as $6 billion of its annual $30-billion price tag is paid out improperly because of errors or fraud.

Brookings Institution economist Robert D. Reischauer, former director of the Congressional Budget Office, said Clinton’s proposal would encourage people to work even if they could get only low-paid jobs.

Reischauer said in an interview that, if there is a tax bill, he believes the president would insist on this expansion being one component.

The earned-income tax credit is widely recognized as one of the most complicated benefits in the federal government. Essentially, it uses the annual tax filing ritual to pay hundreds of dollars each to low-income working families with children. Families apply for the benefit on their federal income-tax forms. The Internal Revenue Service then approves a check, the amount of which is determined by a complex formula taking into account household size and wages.

In 1999, more than 19 million families qualified for earned-income tax credits, which averaged $1,835 per household, according to congressional figures. The subsidy is phased out as families move into the upper-$20,000 bracket in annual income. Census data show that the benefits lift nearly 4 million people a year out of poverty.

One of Clinton’s first acts when he took office in 1993 was to push a major increase in the tax credit through Congress, and Wednesday’s proposal represented a return to his rhetorical and political roots.

The program, Clinton told a meeting of the Democratic Leadership Council in Washington, “is about working. It’s about a fundamental American value. It’s about rewarding people who do what they’re supposed to do.”

Clinton’s new proposals for the subsidy--part of a “new opportunity agenda” that he will detail Jan. 27 in his State of the Union address--involve adjustments, not major changes.

For example, the maximum benefit for families with three or more children would rise by $500, to $4,491 in 2002. The income limit for receiving this benefit would also be raised. A family headed by a married, two-income couple could bring in as much as $14,480 in 2001 and still get the most benefit. The current wage limit is nearly $1,500 lower.

Clinton’s plan also would smooth the rate at which the benefit is reduced for families earning in the mid- to high-$20,000 range. A current sharp drop-off has been widely criticized as punishing people who work harder. “This should be looked at in the context of trying to reward low-wage workers,” said Reischauer.

Finally, the administration is proposing that families be permitted to contribute to a 401(k) retirement plan without jeopardizing the benefit.

The White House estimated that a single mother with three children earning $15,000 a year would get $538 more under the president’s plan. Her new total benefit of $4,116 would increase her income by nearly 30%.

Because the money goes to people who work, the subsidy traditionally has appealed to Republicans and Democrats alike and benefits have been increased under administrations of both parties.