This past summer for once, the talk of taxes around the country was not just about how high they are. It was about how to spend the $300 or $600 in rebates mailed out by the Internal Revenue Service with compliments from President George W. Bush, who signed a trillion-dollar-plus tax bill in early June. For 34 million American adults, however, no refund checks were in the mail. Some believe that is as it should bethese people did not owe any income taxes in the first place. For others, it betrays the bias of the tax-cutting regime. Policy makers have asked how to get some relief through the tax system to low-end wage earners, even if they are not socked with income taxes. An unexpected answer arrived in the same Bush tax bill that delivered the greatest gains to the fewest Americans.
The administration’s tax package gradually doubles the child credit to $1,000 a year per child during this decade. Thataccording to the administration’s original planwas supposed to do nothing for hard-up families whose earnings are so low that they do not owe income taxes. But the plan had to be refined at the last hour, thanks in part to a constituency that popped up out of nowhere in the tax policy field. A provision tucked into the Senate versionand pushed all the way through by a coalition in which religious organizations figured prominentlymade the child credit partly refundable. That means it is available to working families with no income tax liability, after credits.
What these families will get are leftovers, if not crumbs, from the tax-cut banquet. It is, nevertheless, a magnificent banquetand as they say in Washington, a billion here, a billion there, and pretty soon you’re talking real money. In this case, we’re talking about an estimated half-million people catapulted out of poverty over the next nine years.
The new benefit is over and above the Earned Income Tax Credit, the alpha of refundability and a relative windfall from Uncle Sam for the working poor (at least for those who fill out a confusing tax form every year). The child credit is not as liberal as the E.I.T.C., which circulates more benefits than any means-tested program except Medicaid and that was slightly expanded for married filers in the new tax bill. Moreover, the credit will bypass the most impoverished families with incomes of $10,000 a year or less. Still, other families could get a child credit amounting to 10 percent of every $1,000 they earn above that income. Thus a two-child family earning $15,000 could see $500 in additional tax relief for this year, leaping to $750 in 2005 (when the formula shifts to 15 percent of earnings above the mark). When the benefit is fully phased in, a family with two children earning $20,000 will reap a child credit refund of up to $1,500. For such a family, that will come on top of more than $3,000 routed through the E.I.T.C., according to projections by the Center for Budget and Policy Priorities, an anti-poverty research group in Washington.
Who Done It?
This tiny provision of the tax bill could throw a swath of light on what has evidently emerged as a real constituency in the mind of the Bush administration. A pivotal hand came from organizations wooed by the administration for the president’s signature initiative to expand government funding of religious charities. Some well-positioned groups played a quick game of hard ball, or at least it would seem that way from a politico’s view. The hardest challenge was to make their support for the embattled faith-based initiative contingent upon a change of heart on the refundable credit.
One manager of the spiritual squad was the Rev. Jim Wallis, pastor of the evangelically rooted Sojourners community in Washington and the driving force behind Call to Renewal, a Christian anti-poverty alliance of white and black evangelicals, Catholics and liberal Protestants. When Wallis caught wind of a Congressional leaders’ plan to let the refundable credit perish in a House-Senate conference, he telephoned John Carr, chief social-action aide to the U.S. Catholic bishops, and the strategy of faith-and-credit linkage was hatched. Wallis hyperbolized in an interview that during the lobbying burst in late May, George Bush couldn’t turn around in those few days without somebody from the religious community talking to him about the refundable child tax credit.
Though some onlookers gave some credit to the role of the bishops and to Bush’s concern for the Catholic vote, in a rushed interview Carr was less free with his recollections. I could say it was a full court presseveryone from parishioners to cardinals, he allowed, sharing concern that gratuitous publicity might jeopardize fresh openings to Congress and the administration. Freely enough, the president of the U.S. Conference of Catholic Bishops had given Bush friendly advice in an open letter dated May 23. The credibility of the supporters of the faith-based initiative might suffer, wrote Bishop Joseph A. Fiorenza, if the administration is seen as offering strong words on confronting poverty but then allows the only provision of the tax bill which directly helps poor families to be removed.
Some of the more disgruntled noises from faith quarters were piped through the White House office of John J. DiIulio, who has since stepped down as coordinator of the administration’s faith-based initiative. Finally, it was through his friend DiIulio that Wallis heard that the White House was waving off a conservative Republican blockade of the child credit. At some late moment, the president seems to have come around on the question, just in time for him to take credit for the provision in his weekly radio address on May 26.
For Wallis, Carr and others of like mind, the child-credit drive was a salvaging mission in a $1.35 trillion swamp of tax slashing. Official numbers indicate 35 percent of the gains will go to the top 1 percent of the income bracket. An equal share will reach the rest of the fortunate fifth in America, leaving about one-third for everyone else. The short argument for this is that the wealthiest Americans paid the most income taxes, so they should get the most back. The longer argument is basically moral. It says the well-to-do deserve the breaks because, in Bush’s words, these are the folks who pay America’s bills. One rallying cry was that the government should not be punishing the successful with inordinate taxes. In a meeting with religious leaders, a key Senate aide to the Republican leadership reportedly protested that tax breaks for the poor would mean less relief for those who work harder.
Regarding the folks who pay the bills, the critics of the tax bill stressed that folks way down the ladder may not be footing the income-tax bill, but they pay plenty of other taxespayroll, state, sales, excise and so on. From that view, one bias of the Bush tax package is that it hitches the rebate program strictly to payment of income taxes. Consequently, 26 percent of the adult population saw no checks in the mail; another 13 percent received only partial rebates.
The ideological oppositions are striking yet dialectical. They have created bipartisan ways of extending tax benefits to the working poor, primarily through periodic expansions of the E.I.T.C.which says something for politics in Washington. This time around, Republican leaders put up a fight against a new refundable credit, but they evidently changed their minds to the tune of a projected $61 billion in benefits, spread over the decade. That is aside from an additional $17 billion in new E.I.T.C. benefits for dual-earning couples (included in the administration’s proposal). What the tax bill will do to Americans of meager or modest means, if resources for other public needs shrivel, is another matter.
Some in the faith-based realm are seeing the refundable child credit as a sign. Since the president took office, much has been heard from the Call to Renewal flock, not just about getting contracts from government, but also about getting a seat at the table of policy making. To start with, many on that flank would love to help instigate a refundability revolution. They speak of the partially refundable child credit as a good start, meaning that it should eventually cover the full $1,000 for each child. They talk of expanding the E.I.T.C. They propose making the tax credit for day care expenses refundable. The evangelical theologian Ronald J. Sider remarks that refundability is applauded across ideological lines because it helps the poor, rewards work, strengthens the family and discourages welfare.
Actually, some in the anti-welfare brigades have grown anxious about this sort of tax aid, seeing it as merely another channel for welfare transfer payments. Not all the worriers are adverse to anti-poverty measures. C. Eugene Steuerlea deputy treasury secretary in the Reagan administration, now of the Urban Institute in Washingtonhelped design the refundable child credit, partly as a back-door way of patching a pothole in the E.I.T.C., which in effect penalizes families as their earnings reach upwards of $15,000. (The principal Senate sponsors were Olympia Snowe, Republican of Maine, and John Kerry, Democrat of Massachusetts.) Nonetheless, he says of the child-credit cause, I don’t think it’s a pure slam-dunk.
Steuerle worries about running larger and larger expenditure programs through a desperately overburdened I.R.S. He says low-income households already have to fill out tax forms that rival in complexity those of venture capitalists. More philosophically, he broaches a question echoed in an interview by Chris Bergin, who edits the influential Washington journal Tax Notes: should every wage earner have to pay some income taxes simply as a matter of participation in society?
There is a higher question, which the faith brigade hopes to highlight as hearings begin in Congress this fall on reauthorizing welfare reform: What mix of public policies and private energies are needed to erase the scandal of widespread poverty in America after an unparalleled economic boom that appears to be turning sour? Just getting powerful people to ask that question, early and often, would be a signal that the child-credit triumph was more than a fluke.