Analyzing Bob Dole's Tax Credit Plan and Its Effect on Working Families
Your Oct. 14 editorial "Bob Dole's `tax increase'" criticizes the earned income tax credit (EITC), portraying it as a widely abused welfare program undergoing exponential growth. The editorial also indirectly criticizes a report our organization, the Center on Budget and Policy Priorities, prepared. The editorial says the White House has cited that report to support its claim that the Dole tax plan would raise taxes on 9 million households. Unfortunately, the editorial oversimplifies the issues involved.
The EITC has grown rapidly over the past decade as a result of bipartisan decisions to expand it in 1986 and 1990 and a further expansion in 1993. But the rapid growth of the EITC is ending. Our center projects that between fiscal 1997 and fiscal 2002, the EITC will grow at an average rate of just 3.7 percent per year, less than the combination of inflation and population growth. It also projects that after fiscal 1997, the EITC will be one of the slower-growing entitlements and will decline as a percentage of the gross domestic product.
In addition, while the EITC has had serious abuse problems in the past, changes in its structure and administration (culminating in an Internal Revenue Service crackdown launched last year), appear to be having large effects. In the fall of 1995, the center lowered its estimate of EITC costs by $18 billion over seven years; in so doing, the center noted that EITC costs in fiscal 1995 were significantly lower than had been expected and pointed to the IRS crackdown as the likely reason. Further measures to curb EITC abuse were enacted in August as part of the welfare bill.
Finally, there is the question of whether the EITC reductions in the Dole budget plan constitute a tax increase for 9 million households. The Clinton-Gore campaign classified any EITC reduction as a tax increase. Your editorial classified any such reduction as a welfare cut. Both positions are too narrow.
The EITC was designed to offset income and payroll taxes that low-income working families pay. Many near-poor families still owe tax -primarily payroll tax - to the federal government after the EITC is taken into account, although their tax burden is significantly lower because of the EITC. …