PRESIDENT CLINTON'S first budget included an increase in income taxes at the top and a cut at the bottom. The larger increase got the most attention, perhaps with cause. It restored the tax code's progressive edge and helped reduce the budget deficit. But the underappreciated cut performed a comparable service in easing a social deficit the administration had also inherited.
The cut took the form of a sharp expansion of the so-called earned-income tax credit, a wage supplement for low-paid workers, particularly those with children. The credit is a negative income tax. Working families below an income floor have their income tax reduced, and if there's credit left when the taxes get to zero, receive a check for the balance from the Treasury.
The credit was instituted in the 1970s, partly to offset the Social Security taxes paid by the poor. By 1993 some 15.4 million households were receiving it at an annual cost of $15.7 billion. When the Clinton changes were fully phased in three years later, the cost was $28.3 billion, the number of households 19.4 million.
Now the president will propose a modest further expansion of about 7 percent, or $2 billion a year. The benefit would mainly go to low-income working families with more than one child. The White House announcement already has encountered some resistance among congressional Republicans, who argue that the credit has become complicated and is encumbered by error and fraud.
But the IRS is at work on the error rates, and the underlying objection is to the negative income tax, which the critics call welfare. They're wrong; it isn't welfare to supplement a wage when low-income people are told to go to work, not rely on the dole, and the work then turns out to pay too little to lift them out of what the government itself calls poverty. The people who don't want to increase the credit tend not to want to increase the minimum wage either. Indeed, when the subject of raising the wage comes up, they argue that it would be more efficient to raise the credit instead. Then they balk at raising the credit as well; the right alternative is to raise both.
If there is a tax cut, as seems increasingly likely, at least a small share of the benefit should go to low-income working families for whom the income tax is negligible but the Social Security tax remains quite high.