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Administration to Fight Plans to Curb Poor's Tax Break : Deficit: Treasury chief says Clinton is a passionate proponent of the earned income credit. GOP budget cutters cite widespread fraud in the program.

August 17, 1995|JACK NELSON | TIMES WASHINGTON BUREAU CHIEF

WASHINGTON — President Clinton feels a "passionate" attachment to the leading tax break for the nation's working poor families and will vigorously oppose Republican plans to reduce it, Treasury Secretary Robert E. Rubin said Wednesday.

Under the budget adopted by Congress this spring, the earned income tax credit would be reduced for about 14 million working poor families, including 2 million in California. Altogether, about 20 million families benefit from the program.

The program was initiated in 1975 under President Gerald R. Ford and expanded under Presidents Ronald Reagan, George Bush and Clinton. Reagan, who as President was one of the program's most ardent supporters, called it "the best anti-poverty, the best pro-family, the best job-creation to come out of the Congress."

However, many congressional Republicans now say that the program has grown too large over the years, and they point out that it has a record of widespread fraud.

The earned income tax credit, awarded on a sliding scale, is intended to benefit low-income households with children. In 1994, households were eligible if the household gross income was less than $23,755. Those qualifying could, for example, receive a credit of $2,038 for one child.

The congressional budget would slash $23 billion from the program over seven years as part of the Republican effort to balance the budget by 2002. The program is budgeted for $25 billion for 1996.

Rubin, in an interview with The Times, said the average family receives about $1,400 a year under the program, and the budget would reduce that benefit by about $240, with the reduction exceeding $300 for a family that includes three or more children. This, he said, would amount to a tax increase on poor people who work.

The program has enjoyed strong bipartisan support in the past, and Democrats see the plan to reduce it as a potentially hot political issue. Enhancing its appeal for the Democrats is that Republicans in Congress say they are ideologically opposed to tax increases and are proposing substantial relief for most taxpayers.

"It's a bad idea to increase taxes on lower-income working families as a means of reducing the deficit," Rubin declared.

In the past, the tax credit has drawn strong support from conservatives as well as liberals because it rewards work. It also tends to keep some families off welfare rolls, although it was primarily structured for employed parents, many of whom do not qualify for welfare benefits.

"If you increase the taxes on the lowest-income working families," Rubin said, "there is less incentive to work and a greater number will be pushed back on welfare rolls--the exact opposite of what you want to accomplish in welfare reform."

Supporters of the program fear that Republicans, in their efforts to balance the budget, may seek to cut the tax credit even more sharply than is called for in Congress' budget.

Republicans contend that the earned income tax credit has been widely abused by people not entitled to the benefits who file fraudulent claims.

Sen. William V. Roth Jr. (R-Del.) has introduced legislation that would increase the cuts to $66 billion over seven years. He told the Wall Street Journal that the tax credit was "probably the most abused program on the books," with fraud and error rates in the 30% to 40% range.

The Internal Revenue Service's failure to check children's Social Security numbers and verify family earnings has been a major factor in the widespread abuse. After a recent crackdown, however, the IRS reported that the violation rate moved closer to the roughly 15% for other tax breaks.

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