The White House today defended the decision of Congressional negotiators to deny millions of minimum-wage families the increased child tax credit, saying the new tax law was intended to help people who pay taxes, not those who are too poor to pay.
Democrats, however, seized on the decision as an illustration of what they called the essential unfairness of legislation that provides most of its benefits to the wealthy. They promised to propose a bill that would extend the increased credit to those denied it: most families earning from $10,500 to $26,625. The $3.5 billion measure could embarrass Republicans if they chose to vote against it.
"While the Republican tax break leaves no business behind, it leaves behind millions of children from working-poor families," said Representative Nancy Pelosi of California, the House Democratic leader. "Faced with a choice between giving a tax break to an elite few or helping millions of working families, the Republicans once again chose to help their wealthy friends."
[Ari Fleisher] said the bill would wipe out all tax liability for three million taxpayers. Bob McIntyre, director of the liberal research group Citizens for Tax Justice, agreed with that calculation, mainly because the increase in the child tax credit, to $1,000 a child from $600, will help families who earn $26,625 to about $40,000. But most of those earning less do not qualify for the $400-a-child checks that are being mailed this summer to many other families, because Republican negotiators, seeking to fit other tax cuts into the $350 billion bill, dropped a Senate provision.
That provision would have changed the child credit formula to allow families earning just above the minimum wage to get refunds of all or part of the $400.
Democrats and some moderate Republicans, however, argued that it was essentially unfair to give the child tax credit to most middle-income families but not to those lower on the scale. (The wealthiest taxpayers do not benefit from the child credit, which phases out at higher incomes.) Senator Olympia J. Snowe, Republican of Maine, said the lack of a benefit to minimum-wage families was one of the reasons she voted against the bill.
"This ill-founded decision creates a two-tier system under the child tax credit, penalizing low-income working families who need the help most," Ms. Snowe said. "Not only is this unfair, but it further undermines the stimulus portion of the child credit," since it is low- income people who would be most likely to spend the refund.
In another article on the subject, from Common Dreams:
"I don't know why they would cut that out of the bill," said Senator Blanche Lincoln, the Arkansas Democrat who persuaded the full Senate to send the credit to many more low income families before the provision was dropped in conference. "These are the people who need it the most and who will spend it the most. These are the people who buy the blue jeans and the detergent and who will stimulate the economy with their spending."
Ms. Lincoln noted that nearly half of all taxpayers in her state had adjusted gross incomes that were less than $20,000.
Families with incomes lower than $10,500 will also not receive the refund checks. But under the 2001 tax revision, they would not have been eligible for either the $600 or the $1,000 credits because they do not pay federal taxes. Proposals to give them the credits failed on the House and Senate floors on party-line votes.
Several centrist senators worked hard to make the child credit fully refundable for all low income families, and the full Senate voted this month to include a provision that would have included the minimum-wage families. But the provision was dropped in the House- Senate conference, where tax writers spent days trying to cram many tax cuts - most prominently, cuts in the taxes on stock dividends and capital gains - into a bill that the Senate said could not be larger than $350 billion.
But Democrats and children's advocacy groups said the Republican demand for large cuts in the dividend tax, which they said benefits primarily wealthy taxpayers, pushed away the credit from low income families.
"If we were going to have a tax cut to give $1,000 to all these other kids, there's no reason not to include these kids, too," said David Harris, president of the Children's Research and Education Institute. "Their families are working and playing by the rules and are left out, though it would not have cost too much to include them."
The gap in the number of families who receive the child credit occurs because of how the formula was arranged in 2001. Congress decided then to give refunds of the credit to low income families, but just to a maximum of 10 percent of the amount they made over $10,000, or a refund of $600, whichever was lower. The $10,000 amount was indexed to inflation and is now $10,500.
When the credit was raised to $1,000, many families could not qualify for the extra amount, because the 10 percent maximum still limited them. Ms. Lincoln proposed raising the formula to 15 percent, which would have covered the increase in the credit for most of those families. Her proposal made it through the Senate Finance Committee, but later she voted against the full cut.
Because her vote and those of other supporters were not necessary for final passage, Republicans knew they could drop the provision without hurting the bill's chances in the Senate.
"I guess this shows us what our priorities are," Ms. Lincoln said. "I think this tax bill is very irresponsible in the way it treats families."