THOMAS OLIPHANT
Sticking it to working families
WASHINGTON
Despite the president's supposed theological objection to tax increases, that is exactly what about 4 million families with roughly 9 million children are about to experience, with Bush's cynical support. The outrage is actually worse, because the shiv is about to be stuck in these hard-working families under the guise of an effort to help them. Congress is about to pass a catch-all measure allegedly designed to deal with several problems affecting middle-income and lower-income working families arising from the tax cuts of recent years. The problems are a graphic illustration of how shoddy legislation written by people who mostly focus on big-shot lobbyists can cause ordinary Americans to plummet through the cracks. At issue is the child tax credit -- which first appeared in tax law in the late 1990s in a budget deal between the Clinton administration and the Republican Congress. This provision permits a deduction from income taxes due for each child under the age of 17 in a household. In 2001, the value of the credit was set to gradually increase to $1,000 per child, but in the package of additional tax cuts enacted two years later, the phase-in was eliminated and the full, $1,000 figure was made immediately effective. The problem arises because parts of the law governing the child tax credit are "indexed" to remove the effects of inflation and parts are not. The value of the credit itself, for example, is not indexed; neither are the income amounts above which the value of the credit begins to phase out ($75,000 for a head of household, $110,000 for a married couple). On the other hand, the income thresholds above which a working person can claim a "refundable" child tax credit -- a check from the government if income tax liability is so low to begin with that the person would not get his full credit -- are indexed for inflation. The original legislation permitted a refundable child tax credit for families worth up to 10 percent of their earnings above $10,000. That indexed earnings amount is now $10,750. And there's the rub. An analysis by the Urban Institute and the University of Wisconsin offers the example of a married couple with two children who work at the federal minimum wage of a puny $5.15 an hour. Three years ago, their income of $20,600 would have produced a child tax credit refund of $1,060. With a higher threshold two years later, the credit's value drops 5 percent to $1,010. But that's just the tip of the iceberg. As ordinary Americans know too well, incomes downscale in the United States have been worse than stagnant in this decade. Not only has the minimum wage not budged in seven years, but family incomes above that have also suffered severely since 2000, and the suffering has been proportionately greater the lower you go on the income scale. Moreover, this decline in earnings (even before inflation in cases like workers with less than a high school education or single parents) has been accompanied by large increases in the cost of necessities -- including everything from gasoline to health insurance for those low-income workers lucky enough to have any. In the expert analysis -- by Leonard Burman of the Urban Institute and John Karl Scholz of the University of Wisconsin -- a single parent who got a $109 credit in 2001 would have received nothing last year even though her earnings fell. Looking ahead to next year and beyond, it is helpful that the refund rate will rise to 15 from 10 percent, but it will largely ignore the working families with the lowest incomes. As the analysis sums up: "The higher phase-in rate will do nothing to abate the underlying problem that arises from stagnant income growth at the bottom of the earnings distribution. Low-income households with earnings that grow slower than inflation will see their child tax credit erode in real terms every year, and at a rate that is even faster than their decline in real earnings." Bush and his Republican Congress buddies could fix all this substantially, by simply restoring the original $10,000 threshold. The cost to the government would have been $4.3 billion over five years. The fact that they did nothing is eloquent testimony to the status of working families in today's political culture. The next time Bush trumpets his opposition to tax increases, John Kerry should say something about the 4 million families Bush prefers not to count.
Thomas Oliphant's e-mail address is oliphant@globe.com. © Copyright 2004 Globe Newspaper Company.
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