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Tax credits for working families [Editorial]

Class, here's a pop quiz on Washington's view of economics. Who gave the following unsolicited endorsements of the Earned Income Tax Credit, the refundable federal tax credit for low and moderate income workers?

The program gives "families flexibility — it helps them take ownership of their lives."

"A fairly efficient poverty abatement program."

"Promotes work as it reduces poverty."

If you said President Barack Obama, who on Tuesday proposed an expansion of the tax credit as part of his fiscal 2015 budget proposal — or even the usual suspects in the liberal, socialist, income-redistributing, Wall Street-bashing end of the political spectrum — that would be understandable, but it would also be quite wrong.

The endorsements actually came from, in order, Rep. Paul Ryan, the Republican Party's last vice presidential nominee and chairman of the House Budget Committee; Stephen Moore of the politically-conservative Heritage Foundation; and President George W. Bush's former economic adviser Glenn Hubbard. Not a single bleeding-heart in the bunch.

Indeed, it isn't difficult to find Republicans in Congress and conservative think-tanks with nice things to say about the program, which dates back to 1975. Many claim they even want to expand it. Their endorsements ran particularly hot and heavy just two months ago when President Obama renewed his push for a higher federal minimum wage.

So the question is, do they actually like the tax credit program or was it just a way to veer the conversation away from raising the minimum wage to $10.10 per hour? Let's just say nobody should hold their breath waiting for Mr. Ryan and the GOP to push through an expansion of the EITC any time soon. While the program was embraced in the past by Republicans like Ronald Reagan, giving benefits to Americans Mitt Romney once referred to as the 47 percent isn't high on the tea party-driven agenda, particularly in an election year.

Let's face it. The budget Mr. Obama handed to Congress Tuesday will be treated like what it is, a political document. It features the sorts of things that the president and the Democrats in Congress favor — help and opportunity for people who are struggling economically while closing certain tax loopholes that benefit the rich but aren't about creating jobs or expanding growth.

But that doesn't make it especially left of center. President Obama would finance a bigger EITC, for instance, in part by closing the so-called "carried interest" loophole that allows certain profits accrued by hedge funds to be treated as capital gains, which are taxed at a lower rate than income. That's hardly a left-wing concept, as the Internal Revenue Service has long questioned whether the controversial practice is actually allowed under current law and whether it might be corrected administratively (as a reinterpretation of existing law) and not require Congressional action at all.

Don't get us wrong. Raising eligibility for the EITC is no cure-all for poverty. While higher wages can help a family on a day-to-day basis, tax credits are a once-a-year benefit, a sort of bonus check that is received after one files an income tax return. And most of the EITC benefit goes to people with children, so young adults and seniors aren't likely to find much for them. For the last tax year, the maximum benefit available to the childless was all of $487.

But it does make sense as part of an all-of-the-above strategy for helping people left behind in the sluggish economic recovery. And as the Heritage Foundation as others have pointed out, it maintains the incentive to work. Surely, people can then also agree that its expansion should be paid for by top-earners, not by U.S. taxpayers who are also struggling, just not enough to qualify for the Earned Income Tax Credit.

Mr. Obama's budget proposal has other worthwhile features like greater incentives for retirement savings and some modest help for families paying college tuition. No doubt he will be flogging them repeatedly between now and the mid-term elections on behalf of Democratic Congressional candidates. But none of them rival the expansion of the Earned Income Tax Credit as a "put up or shut up" moment for Republicans to demonstrate whether they actually care about the working poor or just like to pay them lip service.

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Copyright © 2015, The Baltimore Sun
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