The Montgomery County Council unanimously approved the nation's first local income tax credit yesterday as part of a broad effort to help working poor families make ends meet in the affluent suburb.

The county earned income tax credit, which will bring refund checks to 12,000 Montgomery families early next year, was first proposed by County Executive Douglas M. Duncan as an alternative to living-wage legislation he helped defeat last summer.

Duncan (D) and a council majority argued that the living-wage measure was likely to discourage economic development by doubling the minimum wage for employees who work for most large county contractors. A local earned income tax credit places no burden on such businesses, and Duncan said he plans to lobby the General Assembly this winter to expand the state's version of the same tax refund.

"We are going to be helping thousands of working low-income families in this county, and if we can get the state to expand its program, then we will expand ours again," Duncan said. "This is just the beginning."

Council critics said the tax credit--worth an average of $176 this year--would do little to lift working families out of poverty and urged more spending at a time of historically high tax revenue.

But proponents said the tax credit is intended to help manage the growing number of families in poverty without running the risk of future budget shortfalls, should the economy decline. The tax credit is one element of a $5.7 million package that includes new spending for job training, transportation, health care and other subsidies.

The number of working poor families has mushroomed in Montgomery and across the country in the three years since welfare reform began pushing low-skilled workers into private-sector jobs, according to county estimates.

The county tax refund is modeled on the federal earned income tax credit, created during the Nixon administration and expanded by Republican and Democratic presidents since then. It will cost the county $2.1 million this fiscal year and more than twice that when fully implemented over the next two years.

Maryland is one of eight states that also provide a tax credit to poor working families. Montgomery families that do not make enough money to pay state taxes would qualify for a $387 annual refund, the maximum allowed under the state program. Montgomery families that receive a check from the state now will begin getting a second check automatically, financed by the county.

The Montgomery credit will affect an estimated 12,000 county families this year with an annual household income of less than $17,000. The average credit this fiscal year for a family of four is estimated to be $176, and county finance officials expect qualified families to begin receiving refund checks within the next four months.

The average refund will grow to $332 over the next two years and apply to 13,600 Montgomery families making less than $19,000 a year, as the refund grows from 10 percent to 15 percent of the federal refund. Only households with children qualify.

But several council members said Duncan's tax credit will not do enough. Council member Philip Andrews (D-Rockville), author of the living-wage bill, said the income tax credit would amount to a 2-cent hourly raise for those who qualify.

"It will help some, but by itself it will not lift people above the poverty line," Andrews said.

Council member Blair G. Ewing (D-At Large), who co-sponsored the living-wage legislation, warned that "we ought to make sure not to make extravagant claims about what is an extraordinarily modest effort."

The tax credit package was introduced by council members Steven A. Silverman (D-At Large) and Michael L. Subin (D-At Large). The two had pledged during last year's campaign to support living-wage legislation in principle, but ended up being the two swing votes that doomed the bill.

Subin and Silverman defended the package yesterday, stressing that it extends beyond the income tax credit. It also provides money immediately to expand bus routes to job centers, extend rental subsidies to an additional 100 low-income families, expand health insurance subsidies and increase spending on education and job training.

"This is clearly just a first step, and it has future budget implications," Silverman said. "But we are trying to meet our commitment to people who are working hard and just not making it."

CAPTION: Council member Blair G. Ewing (D-At Large) called the package "an extraordinarily modest effort."