President Obama submitted his 2015 budget plan to Congress on Tuesday, knowing that hardly any of his proposals have a prospect of actually being enacted this year, what with the Senate controlled by the president’s fellow Democrats and the House
President Obama submitted his 2015 budget plan to Congress on Tuesday, knowing that hardly any of his proposals have a prospect of actually being enacted this year, what with the Senate controlled by the president’s fellow Democrats and the House by Republicans.
But there is one proposal on which Senate Democrats and House Republicans might very well find agreement — expansion of the federal Earned Income Tax Credit.
Indeed, as opposed to increases in the government-mandated minimum wage — which have the unintended consequence of incentivizing employers to shed low-income workers, and which do little to reduce poverty — the EITC benefits low-income workers, while also reducing poverty.
The EITC was first enacted in 1975, when Republican Gerald Ford was in the White House. It is an income subsidy for low-income working families. And it is fully “refundable,” which means that if the credit exceeds a poor family’s federal tax liability, they get a check for the difference.
Over the past three decades, Congress has made numerous changes to the EITC, as noted by Ben Gitis, a policy analyst for American Action Forum. The maximum credit has increased five times from 1984-2009. It was indexed for inflation in 1986, extended to childless adults in 1993 and extended to military personnel in 1994.
The tax credit reduced the marriage penalty in 2001 for low-income families, provided hurricane relief in 2005 and in 2009 raised the earnings level for when the credit begins to phase out.
President Obama proposes to increase the maximum credit available to low-income workers without children from $500 to $1,000 and to increase the income level at which the credit is fully phased out for that cohort to about $18,000. All told, the proposal would benefit 13.5 million low-income workers, the White House says.
Both Democrats and Republicans would be amenable to the president’s proposed expansion of the EITC. But where the parties will strenuously differ is how to pay for the estimated $60 billion tax credit.
Mr. Obama insists on playing class warfare with the EITC, proposing to soak higher-income Americans — yet again — by closing supposedly “unfair tax loopholes.”
Those loopholes include “the so-called ‘Gingrich’ and ‘Carried Interest’ provisions,” according to the White House, which “let high-income professionals avoid the income and payroll taxes other workers pay.”
What the White House did not say is that the Gingrich provision (which Republicans refer to as the Edwards provision, after former Democrat senator and vice presidential candidate John Edwards), allows small businesses to pay less Draconian payroll taxes than they otherwise would.
As to carried interest, it has been part of the federal tax code for more than 50 years. It offers incentives to investment funds that risk capital on long-term investments.
Rather than punish the investment community and small businesses to pay for expansion of the EITC, President Obama should have dusted off his idea to rein in cost-of-living increases for Social Security recipients. Then, perhaps, his proposal to double the tax credit for childless low-income workers might win bipartisan support on Capitol Hill.
— From the Orange County Register
