How to Help Working-Poor Families? Answer Goes Beyond Cuts and Credits

The right diagnosis. The wrong remedy.

That’s the bottom line on a new proposal from a coalition of liberal groups to make President Bush’s tax cut more lucrative for working-poor families.

The Children’s Defense Fund and its allies in the coalition have spotlighted a genuine problem: Bush’s tax cut doesn’t offer much for families on the lowest rungs of the job ladder. Bush’s blueprint would begin providing noticeable benefits once families approach the median income of $41,000. But for the working poor--like the single waitress mom earning $22,000 a year that Bush celebrated during the campaign--the plan means only token savings.

The reason is a bit of a Zen riddle: Bush’s proposed income tax cut doesn’t save the working poor very much because they already pay very little in income taxes. Existing tax benefits such as the earned-income tax credit (which subsidizes working poor families) and the tax credit for child care mean that a two-parent family with two children doesn’t begin paying federal income taxes until its income reaches nearly $26,000--well above the federal poverty line. Families that spend as little as $50 a week in child care don’t begin paying federal income taxes until their income passes $32,000.

That doesn’t mean these families don’t pay any federal taxes. Almost all working poor families pay more in Social Security payroll taxes than income taxes. But because Bush focused almost entirely on the income tax, millions of these low-income working families won’t see any relief. Earlier this month, the Center on Budget and Policy Priorities calculated that 12 million low- and moderate-income families with 24 million children--about one-third of all children--wouldn’t receive a dime from Bush’s tax cut. In other words, many families that need help the most would receive the least.

The only way to support these struggling families through the tax code is to provide refundable tax credits. With refundable credits, Washington writes taxpayers a refund check if the value of the credit exceeds the income tax they owe; that assures taxpayers at all income levels can benefit from the breaks.

Under that principle, the coalition of liberal groups is pushing to redirect Bush’s proposed tax break for families with children. Bush wants to double the existing $500-per-child tax credit to $1,000 and make it available to families earning up to $200,000 annually (almost double the ceiling today). The coalition supports the first part; but it says that instead of expanding eligibility up, Congress should make the children’s tax credit refundable so that it benefits low-income families that now don’t pay enough income taxes to qualify.

From one angle, that proposal establishes a contrast that many liberal legislators may find politically appealing: If Washington is going to expand the children’s tax credit, should it steer the benefits toward cul-de-sac couples earning more than $100,000 a year or low-wage families that sometimes eat dinner from a can at the end of the month?

But in fact, in both policy and political terms, the refundable children’s tax credit is more likely to lead the left into a dead end.

Since the credit would not be conditioned on work, it amounts to an open-ended federal subsidy for bearing children. Refundability advocates such as Deepak Bhargava, director of the National Campaign for Jobs and Income Support, say the credit, like the subsidies for children in many European countries, would provide a guaranteed income floor under children. “Most low-income families go in and out of the labor market, and there needs to be some kind of basic [income] support for the children in those families,” he insists.

But that’s precisely the logic of unconditional entitlement that Congress and former President Clinton rejected in 1996 when they approved time limits on welfare. While supporting some basic protections for children (such as extended medical care), welfare reform instead embodied the principle that government must demand personal responsibility from all whom it helps. A refundable children’s tax credit available even to families out of the work force rejects that principle. Indeed, critics see the proposal as nothing more than welfare by another name, a backdoor attempt to dilute the 1996 welfare reform law by groups that have never wavered in opposition to it. At $1,000 per child, the credit would offer as much cash as many states provide for an additional child on welfare.

It’s not surprising that Robert Rector, the welfare analyst at the conservative Heritage Foundation, derides the refundability proposal as a subsidy for “women to be idle and have children out of wedlock.” But even centrist Democrats, such as welfare expert Isabelle Sawhill of the Brookings Institution, see it as a step backward: “It’s not consistent with mainstream values, and in the end it’s going to have perverse effects, both substantively and politically. Substantively because it really will lead to people choosing idleness over work, and perhaps choosing to have children outside of marriage; and politically because the average taxpayer is not going to support this kind of assistance.”

Yet Rector and Sawhill agree that the tax code should do more for working-poor families. What’s the alternative? Refundable tax credits tied to work. Rector prefers expanding the earned-income tax credit for married couples. Sawhill recently proposed making the children’s tax credit refundable, but only for taxpayers with at least $8,000 a year in earnings--roughly the equivalent of year-round 30-hour-a-week work at the minimum wage. Congress could also make the existing tax credit for child care refundable, or splice together a mix of all three ideas. Generally, Republicans don’t like refundable tax credits (which they see as camouflaged spending programs). But if any refundable credit could clear Bush and the GOP Congress, it would be one that promotes work.

Over the last decade, the American social safety net has been evolving from a system that provides minimum sustenance for nonworkers (through welfare) into one that bolsters low-income workers whose wages aren’t big enough to provide a decent life (through supports including the earned-income tax credit and expanded health insurance for children). Steering more benefits from the children’s tax credit toward working-poor families through a refundable credit would continue that healthy transformation. But, both in Congress and on the ground, the idea won’t work unless it honors, and demands, work.

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Ronald Brownstein’s column appears in this space every Monday.

See current and past Brownstein columns on The Times’ Web site at: https://www.latimes.com/brownstein.