Montgomery County Executive Douglas M. Duncan yesterday proposed making the county the first in the nation to create a local income tax credit for poor families, joining the debate over how to help those struggling to make ends meet in the prosperous suburb.

The proposal was Duncan's response to legislation pending before the County Council that would require most companies that receive county contracts or economic development incentives to pay employees more than double the minimum wage.

Duncan (D) has said that the council's bill, if enacted, would burden the local economy by making it too costly for many private firms to do business in the county. As a substitute, he offered yesterday an $11 million package of tax credits and subsidies for low-income families, including $6.5 million in new spending for child care, health insurance, housing, transportation and job training.

Its heart is a proposed county earned income tax credit that would provide about 13,600 Montgomery families with an average refund check of $332 a year--with some as high as $614--when fully implemented in two years.

Such credits already are included in the state and federal tax code, but Montgomery would be the first county to allow one. The New York City Council recently endorsed a smaller earned income tax credit, but it needs state approval before it can become law, and that approval is uncertain.

In its first year, Montgomery's tax credit would apply to households with annual incomes of $17,000 or less. Some of those same households stand to gain more financially under the pending "living wage" legislation, but only if their wage earners work at a company that does business with the county or receives county subsidies. Duncan's tax credit would apply to every family that meets the income requirements.

"This is a much broader package [than the living wage bill] that gets the help directly to those who need it," Duncan told a noon news conference. "I felt the council needed to look at alternatives."

Another key difference is that the costs of the living wage bill would fall mainly on Montgomery's private sector. By contrast, the income tax credit would cost the county treasury $4.5 million a year starting in two years and leave the private sector untouched.

County officials said that with the budget in surplus, the loss of the tax revenue would not impose hardships, and that Duncan's proposed assistance was too small to prompt the poor of other jurisdictions to relocate to Montgomery.

Council members and living wage advocates reacted skeptically to Duncan's proposal, while endorsing it in concept. They questioned why the new spending was not included in his $2.6 billion budget approved less than two months ago.

"It's pretty clear that he feels a lot of pressure from the growing coalition of community groups and churches that support our legislation," said Tom Hucker, executive director of Progressive Montgomery, chief organizer of the living wage campaign.

Several council members said the proposal would not take the place of the pending living wage legislation. That bill would require the county's biggest contractors and economic grant recipients to pay employees at least $10.44 an hour without benefits, the level at which a family of four is no longer eligible for food stamps.

"This is a supplement, not a substitute, for living wage legislation," said County Council member Philip Andrews (D-Rockville), the living wage bill's primary sponsor. "The best way to reward work is to raise wages above the poverty level. There's no reason why we can't and shouldn't do both."

Since national welfare reform began prodding poor families into low-wage jobs three years ago, the working-poor population has become the focus of anti-poverty advocates and liberal politicians.

At the same time, Montgomery's increasing numbers of immigrants are driving up poverty in many neighborhoods, as measured by the number of low-wage jobs and children receiving subsidized meals in public schools.

About 30 large jurisdictions have passed some form of living wage legislation since reform began, but none has implemented local income tax credits, which have proved to be less controversial than wage bills at the state and federal level. Montgomery's living wage bill is scheduled for its first public hearing July 22.

Montgomery's credit mirrors the state earned income tax credit. It would give qualified families an annual refund equal to 10 percent of the federal tax credit beginning in 2000, rising to 15 percent by 2001.

"It is a very efficient way to get money in the pockets of working families, and the costs are borne by the public sector," said Steve Bartolomei-Hill, director of the Maryland Budget & Tax Policy Institute, a nonprofit organization that studies state fiscal policy. "In the private sector, there is worry about how the living wage is going to affect their bottom line. When you do an earned income credit, you don't have those concerns."

CAPTION: Douglas M. Duncan proposed an alternative to the "living wage" bill.