Tax bill includes some relief for working poor

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June 2001

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Tax bill includes some relief for working poor
A legislative campaign by Catholic and other family advocacy groups was partially rewarded when a little observed provision allowing tax credits to be "refundable" to America's working poor was added to the tax reform package signed into law on June 8 by President George Bush. While most of the attention and controversy that swirled around the tax bill focused on the projected cuts for the richest Americans in coming years and the package's likely impact on the national debt, a lesser known provision was included in the Senate version of the tax bill that allowed the Earned Income Tax Credit to be "refundable" to low-income parents, even many who had paid no federal taxes.

The National Campaign for Jobs and Income Support called the provision the "silver lining" in the Bush tax plan and described its passage as a victory for grassroots organizing. While the Senate and House versions of the Bush tax bill went to a joint conference committee in May, a coalition of some of the nation's religiously affiliated social service organizations called on Congress to extend the EITC to larger families, to increase the child tax credit, and to make it fully refundable.

"While middle income and affluent families get the full benefit of the personal exemption for all of their children, low-income working parents can only receive [the] EITC for a maximum of two children," the leaders of Catholic Charities USA, Lutheran Services in America, Volunteers of America, and The Salvation Army said in a joint statement. Catholic support for the expansion of the credit was based, said Father Fred Kammer, S.J., President of Catholic Charities USA, in the Catholic teaching of a living wage, the "right of workers to earn a wage that keeps their families out of poverty."

Their efforts, however, seemed to have been only partially successful. While families with very low incomes will still not receive additional relief, the credit will help 17 million more children than under the original proposal and lift 500,000 children out of poverty.

The previous child tax credit code, enacted in 1997, enabled most taxpayers with children younger than 17 to reduce their taxes by $500 per qualifying child. However, the credit was "nonrefundable." That meant that, with limited exceptions for large families, the tax credit was worth nothing to families who were too poor to owe federal income tax—even though many of these families have a significant tax burden, including payroll, state and local, sales, gasoline and other taxes.

During the presidential campaign, George W. Bush proposed to double the credit to $1,000 per child but to keep it nonrefundable. That proposed credit expansion would have provided no additional help to children in moderate and low-income families—one out of every four U.S. children younger than 17.

The final tax bill made the child tax credit partially refundable. The credit will increase from $500 to $1,000 per child over the next ten years, and it will be partially refundable for families with earnings above $10,000 per year. The net effect is that a family with one child earning $17,000 would eventually get a $1,000 refund check back from the IRS.

The program costs about $8 billion per year, and amounts to the largest antipoverty program created since the early 1990's expansion of the EITC, according to the National Campaign for Jobs and Income Support.

The EITC allows those filing federal tax returns and having incomes below certain levels to receive some or all of their withheld federal income tax, extra cash from the Internal Revenue Service, or a reduction of any additional taxes. Even workers without children and those whose earnings are too small to be taxable can qualify for the tax credit. The purpose of the EITC is to reduce the tax burden on moderate and low-income workers, supplement wages, and make work more attractive than welfare. In most cases, receiving the EITC affects eligibility for other types of assistance.—Joel Schorn
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