The proposal last month by the National Commission on Children for a $1,000-per-child federal tax credit highlighted what is becoming one of the most politically popular strategies for helping parents build a better life for their children: easing the tax burden on families.
The recommendation was the centerpiece of a massive report by the bipartisan 34-member panel established by the Congress in 1987 and chaired by Senator John D. Rockefeller 4th of West Virginia. (See story on following page.)4
The cost of the refundable income-tax credit, estimated at $40 billion a year, is daunting even to many supporters of the idea. And some observers argue that such credits, since they would involve cash payments to those who owed no tax, would amount to a new form of welfare with no strings attached.3
But the proposal’s premise that families are overtaxed has been embraced across the ideological spectrum on Capitol Hill, where tax-relief bills have been offered in recent months by members of both parties.
“I haven’t seen anybody with the temerity to say, ‘I oppose tax relief for American families,”’ said Kate O’Bierne, vice president of government relations at the Heritage Foundation.
A ‘Decisive Issue’
Liberals and conservatives have long disagreed on the value of federal family-support programs, ranging from welfare to child care. But the panel’s proposal and the various Congressional bills underscore the growing enthusiasm for federal initiatives that boost the power of the family purse.
“There is a growing sense that the family issue is going to be one of those decisive issues in the 90’s- and that a lot of other things [besides tax policy] on the family agenda are very divisive,” said Gary L. Bauer, an education undersecretary and White House domestic-policy adviser in the Reagan Administration who is now president of the Family Research Council.
Added Representative Thomas J. Downey, a New York Democrat who is the lead sponsor of one of the tax-relief bills awaiting House action, “There is a recognition that America’s children are in trouble... and that a tax credit for children is one general answer of how we can make things a little better for them
“We all agree that economic security for families must be a national priority,” said Marian Wright Edelman, president of the Children’s Defense Fund and a member of the Rockefeller panel.
‘Pro-Family’ Appeal
Observers acknowledge that action on a major tax-relief bill is unlikely this year within the confines of last year’s budget agreement, which requires that new federal spending be offset by either funding cuts or increases in revenues.
And while the Bush Administration proposed tax credits for low-in come working families during the child-care debate in the 101st Congress, it has not thrown its support behind any of the current proposals.
But those following the issue say tax relief is likely to move higher on the Congressional agenda next year, and could play prominently in the 1992 Presidential race. Commentators have been quick to note that Senator Rockefeller, who significantly raised his national profile with his commission’s report, is a potential contender for the Democratic nomination.3
Mr. Bauer observed that the issue is likely to step up competition by Democrats for the “pro-family banner” and tax-cutting stance traditionally claimed by Republicans.
More than 140 House Democrats have signed a letter that was sent to Speaker of the House Thomas S. Foley last week urging the Democratic leadership to begin working toward an agreement on a “tax fairness” measure for consideration next year.
Tax relief appeals to Democrats “because it helps middle-income and working people,” said Elaine Ciulla Kamarck, a senior fellow at the Progressive Policy Institute, which urged in a report last fall the adoption of tax changes to help parents in rearing children. (See Education 4 Week, Oct. 10, 1990.)
Republicans, noted Ms. Kamarck and others, like the “pro-family side” of such tax breaks and see them as a way to widen families’ choices--including the option to for go an extra income and stay home with a young child--without creating more government programs. “Many low- and middle-income families are straining to meet in creased costs for housing, clothing, food, and education,” said Douglas Besharov, a resident scholar at the American Enterprise Institute. It makes more sense, he argued, to let them keep more of the money they make “than [to] tax it and then give it back to them in the way of a government program.” “Anything that puts money into the hands of America’s families--especially poor families--has got to be welcomed and applauded,” said Edward F. Zigler, an architect of the Head Start program who is now Sterling Professor of Psychology at Yale University and director of the Bush Center in Child Development and Social Policy.
In his new book, Child Care Choices: Balancing the Needs of Children, Families, and Society, Mr. Zigler proposes a national child-care allowance for all families with children under age 3, to be paid for by the Social Security system.
‘Massive Tax Shift’
Representative Patricia Schroeder, the Colorado Democrat who assumed the chairmanship of the House Select Committee on children, Youth, and Families this year, showcased the issue of tax fairness at a hearing on April 15, the day federal income taxes were due.
“For too long, America’s families--especially middle-income families--have been footing more than their fair share of the nation’s tax bill,” she said at the hearing. “We can no longer ignore the detrimental effect that this massive tax shift has had on the economic well- being of America’s families.”
A fact sheet distributed at the hearing pointed out that federal in come taxes, Social Security taxes, and state and local taxes accounted for 25 percent of the median family income in 1990, up from 14 percent in 1960.
It also stated that a median-in come family of four paid 9 percent of its income in federal income taxes and 7.65 percent in Social Security taxes in 1990, compared with 0.3 percent and 1.5 percent, respectively, in 1948.
Experts attribute much of the in creased tax burden for families to the erosion in the value of the federal tax code’s exemption for dependent children. The size of the exemption, they 4explain, has declined relative to inflation and real-income growth.
Witnesses at Representative Schroeder’s hearing pointed out that the personal or dependent exemption in 1948 was set at $600 per person-- more than 40 percent of per-capita personal income. Despite 1986 tax reforms that increased the amount of the exemption and indexed it for inflation, the exemption in 1990--equaled only 11 percent of per-capita personal income.
To match the value of its 1948 level, the exemption in 1990 would have to have been about $7,800, according to C. Eugene Steurele, a senior fellow at the Urban Institute.
To address the situation, proposals to make the tax code more “family friendly” would either raise the personal exemption or offer a per-child tax credit.
The credits proposed by the Rockefeller commission and others would be refundable, meaning that low-income families who owed little or no federal taxes would receive a cash payment for the amount of the difference between their tax liability and the credit’s value.
In general, raising the personal exemption would mean a greater financial break for families in higher tax brackets, by reducing their taxable income. A refundable tax credit is seen as more beneficial to those at lower income levels.
Affordability Questioned
Some who favor the exemption approach would make it more progressive by phasing out the exemption at higher income ranges.
“We chose the exemption because it is more politically popular,” explained Ms. Kamarck of the Progressive Policy Institute. “This is something normal, middle-class Americans relate to.”
Representative Frank R. Wolf, a Virginia Republican, has combined both approaches in two bills aimed at working families. One, backed by some 240 co-sponsors, would raise the exemption for dependents under age 18 to $3,500; the other would offer a tax credit of $500 for children under 5 in families earning less than $50,000. Companion bills have been offered by two Republican senators, Daniel R. Coats of Indiana and Charles E. Grassley of Iowa.
Spotlighting tax-equity issues, meanwhile, Congressional Democrats have proposed combining tax relief for middle-income families with tax hikes for the wealthiest 1 percent of Americans, whose federal-tax rate has been reduced since the late 1970’s.
Measures offered by Representative Downey and Senator Al Gore of Tennessee would replace the personal exemption with a refundable credit of $800 per child while raising the top income-tax rate to 35 percent, from 31 percent, and adding an 11 percent surtax on taxpayers with adjusted gross incomes above $250,000.
On the other hand, the Rockefeller panel’s $1,000-per-child credit, which would replace the current $2,150-per- child exemption, would treat all families identically, an approach some say is unrealistic given current bud get constraints.
“Their approach doesn’t target any group; you can be president of Exxon and still get the tax credit,” said Representative Wolf. “It’s an interesting approach, but I don’t see how we can afford it.” ?
Welfare Incentive?
Others, like Mr. Bauer of the Family Research Council, caution that extending the credit to families with no taxable income would be tantamount to “a welfare payment” and “could almost serve as an inducement for out- of-wedlock children.”
Giving $1,000 per child “to all young mothers regardless of whether they are working or in school is another form of increased, no-questions-asked welfare payments,” added the American Enterprise Institute’s Mr. Besharov, who said the Rockefeller commission “took a good idea too far.”
“I don’t think we should be making a major increase in payments we give to those young girls without requiring a change in behavior,” he said.
Mr. Besharov argued that lowering the tax rate for families in which one adult works full time and limiting the payment to “those who need it” would be more effective and less costly.
Bernice Weissbourd, president of the Family Resource Coalition and a member of the national commission, is among those who argue that the estimated $40-billion yearly price tag for the proposed tax credit would be a small price to pay for an allowance that recognized the “universal value” of raising children without making such help a “welfare issue.”
David Liederman, executive director of the Child Welfare League of America, also called the cost relatively modest, noting that child tax credits are “an old idea” in Scandinavia and elsewhere in Europe, where it is “just accepted” that families with children get government allowances.
Some analysts, like Ms. Kamarck of the Progressive Policy Institute, favor limiting a tax credit or a higher dependent exemption to parents of preschoolers. Such youngsters, she reasons, would gain the most if their parents could give up a second income to allow one spouse to stay home, or could use the tax break to help buy higher-caliber child care.
In introducing his young-child tax credit of $500, Representative Wolf of Virginia argued that additional tax relief to families with young children would help them “get off to a good start at a time when the demands on parents are the greatest and their resources are most thinly stretched.”
But limiting the credit by the age " of the child runs counter, said Ms. Weissbourd, to the notion that “families should be helped with children through the ages of childhood.”
Need for Other Services
Proponents of tax changes to aid families concede that there is no guarantee that the money would be spent to better children’s lives.
“There is scant evidence that just giving people more money will necessarily make their children better off,” said Representative Downey.
He added, however, that “there is an enormous body of evidence to suggest that poor children are at much greater risk of being abused 3 and having bad outcomes.”
While not all parents would use a refundable credit to “do terrifically well by their children,” Mr. Zigler of Yale University said, “the overarching majority by far ... really want to do well.”
While some families might “spend the money on beer,” added Ms. Kamarck, “I have great faith that these are the minority.”
For conservative lawmakers like Mr. Wolf, tax-code changes offer a welcome alternative to programs that assume, as he puts it, that ''government knows better than mother or father” how to aid children.
But the more liberal Mr. Downey and others stress that tax credits should not be viewed as a substitute for more targeted social programs. “Clearly, both are necessary,” the New York Democrat said.
“Because of the social benefits of providing a sound environment for child development, there is a public responsibility and a public benefit to providing some kind of support,” added Barbara Willer, director of information services for the National Association for the Education of Young Children.
“But to focus solely on economic assistance, without recognizing the need to provide services that support families,” would be a mistake, she said.
In the case of child-care services, Ms. Kamarck of the Progressive Policy Institute said, “putting money into the pockets of people buying day care has to have an effect on the quality"--for example, by improving the prospect of raising day-care workers’ wages.
But she stressed that tax-code solutions are not designed for the “hard core” of poor, unemployable parents, who are already targeted by other programs and proposals.
“We’re talking about people who right now don’t get anything from the government,” Ms. Kamarck said, “and are straining from the fact that for two decades, family incomes have not risen, while the tax structure has become more regressive.”
