Saturday, February 19, 2000; Page A26

PRESIDENT CLINTON proposed almost in passing in his State of the Union address and budget to alter a flagrantly inequitable provision in the tax code, having to do with child care. The law for years has provided a limited credit against the cost of child and other dependent care. For a family with one child, it can amount to $480 a year; for two or more children, twice that. That's not enough to pay the full cost of most care, but it's better than nothing.

Nothing, however, is what a lot of families get. The subsidy is available to the well-to-do; there's no income limit on eligibility. But it's not available to the lowest income 30-odd percent of all families with children. Their incomes are such that they owe no income taxes, which means they have no liability for the credit to offset.

The government does have a program on the spending side of the budget for lower-income families. It takes the form of grants to the states, which then provide such families with vouchers. But there's money enough for only about a twelfth of those eligible. The tax subsidy for the middle class and up is an entitlement, automatically available to all who have qualifying expenses and apply. The grants to the poor are a game of chance. The inadequate amounts available depend on the annual appropriations process and the generosity of the states.

The president would deal with the issue not by abandoning the grants but by supplementing them. He would make the entitlement available to all by making the credit "refundable," meaning that if a family had no income tax liability, it would still receive its credit in the form of a check from the Treasury. A refundable earned-income credit already is on the books; it supplements low wages. Congressional critics denounce it as welfare; they will doubtless look similarly on this. But why have a subsidy if it is not tilted to benefit those in greatest need, and why a more reliable subsidy for the better-off than for those at lower income levels? The president does a service if only in highlighting the issue.