Congressional negotiators beat back efforts yesterday to expand and preserve tax refunds for poor families, even as they added $13 billion in corporate tax breaks to a package of middle-class tax cuts that could come to a vote in the Senate today.
The House-Senate negotiations concluded last night with the approval of a five-year $146 billion tax cut, the fourth tax cut in as many years. By the end of this week, Republican leaders expect to pass extensions of three tax cuts primarily aimed at middle-income taxpayers -- a $1,000-per-child tax credit, tax breaks for married couples and a 10 percent income-tax bracket that was expanded last year.
But the fight over the child tax refunds during the negotiations revealed a split among GOP tax writers.
Senate Finance Committee Chairman Charles E. Grassley (R-Iowa) sided with Democratic leaders in pushing for changes in the child tax credit to ensure that millions of poor families would not see their credits shrink or disappear next year.
House Majority Leader Tom DeLay (R-Tex.) and House Ways and Means Chairman Bill Thomas (R-Calif.) opposed the move, as did Sens. Don Nickles (R-Okla.) and Trent Lott (R-Miss.). That effectively scuttled changes to existing law.
The dust-up centers on an obscure provision in the 10-year, $1.35 trillion tax cut that Congress passed in 2001. That tax cut expanded the $500-per-child tax credit to $1,000, but it also made another child credit available as a tax refund to some poor families who pay little or no federal income taxes.
Such families were allowed to claim a child credit worth as much as 10 percent of their earnings over $10,000. But the 2001 law stipulated that the $10,000 threshold would rise with inflation, effectively slicing into or eliminating refunds for families whose income does not keep up with inflation. The threshold now stands at $10,750.
Because incomes at the bottom end of the workforce have largely stagnated, the rising threshold has had a significant impact, said Leonard E. Burman, a senior fellow at the Urban Institute. Of the 11 million families claiming the child tax refund, more than 4 million -- with 9.2 million children -- will see their credit shrink or disappear in 2005, Burman estimated.
Grassley and the Democrats argued that the tax package under consideration is designed to ensure that middle-class families do not see a tax increase next year. So, they asked, why should poor families?
"It's a symbolic point," said Christina Smith FitzPatrick, a senior policy analyst at the Women's Law Center. "You're making everybody better off except these people at the very bottom."
Grassley backed an amendment by Sen. Blanche Lincoln (D-Ark.) that would have severed the link to inflation and set the threshold back to $10,000, at a cost to the Treasury of $4.3 billion over five years.
"I am continually astounded that some members of Congress don't understand how challenging it is to raise a family in today's economy," Lincoln protested. "While the cost of everything from milk to laundry detergent continues to rise, tax relief for low-income working families decreases."
But other Republicans balked, arguing that the government already helps working poor families with the earned-income tax credit and other tax rebates.
Nickles told negotiators that the largest tax refund program -- the earned-income tax credit -- is already riddled with abuse and mistaken payments, and that he did not wish to expand another tax refund program until those problems have been sufficiently addressed. House leaders have long argued that tax cuts are meant to be relief for taxpayers, not added welfare payments for those who do not pay income taxes.
Instead, they focused on a package of 20 expiring business taxes worth $13 billion, including a research and experimentation tax credit worth $7.6 billion through 2014, a $700 million tax credit for hiring welfare recipients, and smaller breaks to help Caribbean distillers, clean-fuel vehicle manufacturers, environmental remediation and wind energy, among others.