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Created in 1975, the credit is intended to keep people working and to offset the payroll taxes they contribute for Social Security and Medicare. Last year, taxpayers earning between $10,000 and $31,000 were eligible, depending on number of children. The average 1998 claim was $1,459 for 19.4 million taxpayers.
FACT 2 September 29,1999
Republicans in Congress want to spread the refunds, for people claiming the earned income tax credit, over 12 months to produce $8.7 billion in savings they can use to pay for fiscal 2000 appropriations bills without breaking balanced-budget spending caps or dipping into Social Security money. Created in 1975, the credit acts as an incentive to keep people working and contributing payroll taxes to Social Security and Medicare. Last year, people earning between $10,000 and $31,000 were eligible for a maximum credit of $3,756, depending on how many children they have.
``Every other income transfer program we have is done on a monthly basis,'' said House Majority Leader Dick Armey, R-Texas. ``It is a common-sense way to do this sort of thing.''
Democrats said Republicans were trying to depict the payment as a handout instead of a tax refund. No other federal tax refunds are made in installments.
``It would represent a tax increase on up to 20 million working families and it would be an anti-work tax increase,'' said Treasury Secretary Lawrence Summers of GOP plans to change refunds for people claiming the earned income tax credit.
Officials at H&R Block Inc. said the proposal to convert the refunds from a lump sum to monthly payments would force millions of low-income people to put off major purchases such as a car or take out high-interest loans for everything from Christmas gifts to medical procedures. ``It's a decision that could cause confusion and disrupt the personal lives of hardworking American families,'' said Frank Salizzoni, Block chief executive officer. He added that the move would ``single out the working poor who are counting on these refunds.''
GOP leaders say the move would not reduce the refunds by a single dime, might cut down on the chronic EITC fraud problem by removing the lure of a large cash payment and would bring the program in line with other federal monthly assistance such as food stamps and welfare.
Democrats say spreading out the payments would prevent people from saving more money or making credit card payments, effectively taking money out of their pockets in the form of interest. ``The Republicans want to steal from the working class and give to the rich,'' said Rep. Charles Rangel, D-N.Y.
In a rare dispute with Congress, Republican presidential candidate George W. Bush on 9-30-99 criticized a GOP plan to squeeze money from a program for the working poor to meet budget targets. ``I'm concerned about the earned income tax credit. I'm concerned for someone who is moving from near-poverty to middle class,'' said Bush
Republicans on a House of Representatives panel 9-30-99 bucked the advice of George W. Bush and passed a measure to help balance their federal budget by delaying tax credit payments to low-income working people. Voting on straight party lines, the House Appropriations Committee agreed to save nearly $9 billion in fiscal 2000 by doling out Earned Income Tax Credit payments made to families in the $20,000-$30,000 income range in monthly installments instead of a lump sum.
Intended to help struggling families, the income-based refund is of payroll taxes, sales taxes and other taxes considered most burdensome to the poor. Most people who get the credit do not earn enough to pay income taxes.
Republican presidential candidate John McCain said 10-1-99 that Congress shouldn't ``tamper with a much-needed tax credit for working Americans'' and suggested cutting special interest subsidies would be a better way to meet budget targets. ``Congress has found the funds to raise their own salaries but they can't find enough to help and lower and middle-income Americans,'' said McCain, who called the phase-in an ``accounting gimmick and Americans are tired of this kind of gimmick from Congress.''
The GOP argument for making 12 payments over the year is that poor people actually need more help making monthly ends meet and that the single payment is more difficult for people to manage. ``I think it's something that helps families in need to get their money on a monthly basis instead of one cash drop sometime in the spring,'' said House Speaker Dennis Hastert, R-Ill.