Guess who lost their tax cut? The working poor and their children.
At the very last minute, in the House Conference Committee, 11.9 million poor children lost $3.5 billion while the 200,000 households earning over $1 million per year got about $90 billion in tax cuts.
The tax bill just passed will increase the child tax credit from $600 to $1,000. As a result, middle- and upper-income families will get a check in July for $400 per child. But not poor working families. Because of this last-minute decision, 11.9 million poor children in working families with incomes from $10,500 to $26, 625 lost their $3.5 billion. Why? To keep the total tax-cut package to $350 billion.
Of course, there would have been other ways to save this $3.5 billion for the working poor. Reducing the capital gains/dividend tax cut (which goes mostly to the richest 15 percent) just a little less—by a mere 2.3 percent—would have preserved the $3.5 billion for the working poor. This tax cut goes overwhelmingly to the rich.
Don't be deceived by statements that "91 million tax payers will receive, on average, a tax cut of $1,126" (Treasury Department). The tiny group (one-fifth of a million) of people who make over $1 million a year get an average tax break of $93,500 from this bill. On the other hand, the average tax cut for households in the middle fifth of all households is a mere $217—and 53 percent of all households (73 million) get less than $100!
When he signed the bill, the President said that 12 million elderly tax filers would receive an average tax cut of $1,401. But the elderly rich get most of it: 63 percent of the elderly get less than $100.
Fortunately, there is a bit of good news. After widespread negative publicity, the Senate voted 94-2 to restore the $3.5 billion child credit for the working poor, and President Bush—thanks in part to strong urging from the religious community—has strongly endorsed this development. Unfortunately, Republican leaders in the House want to tie this $3.5 billion for the working poor to still more, vastly larger tax breaks for the richest Americans.
The full tragedy and moral outrage of all this becomes clearer in the context of developments over a longer time frame.
For decades, the richest 20 percent (especially the top 5 percent) of Americans have received a larger and larger share of the nation's total income and wealth. American society today is more unequal than at any time in decades, and more unequal than all other industrialized nations. The top 1 percent has more wealth than the bottom 90 percent!
From 1989 to 2000, total GDP grew by 40 percent. But the after-tax income of the top 1 percent grew by 69 percent, while the bottom 95 percent saw their after-tax income increase by only 9 percent. From 1979 to 1997, the richest 1 percent saw their after-tax income grow by 157 percent-$414,000 per household! According to Business Week, the ratio between the pay of CEOs in our 365 largest companies and the average pay of their workers was 42-to-1 in 1980. Now it is 500-to-1!
President Bush has already given this rich minority a huge tax break. The final law was a slight improvement, but his original proposal in 2001 to cut taxes by $1.6 trillion would have given 40 percent of the total benefit to the richest 1 percent while the bottom 40 percent got a piddling 4 percent.
Some argue that the rich should receive the biggest tax cuts because they pay the most taxes. It is true that in 2000, the richest 1 percent paid 37.4 percent of all federal income taxes (the top 5 percent paid 56.5 percent). Two comments are crucial. First, when you count all federal taxes (payroll, excise, etc.), then the top 1 percent paid only 23 percent (the top 5 percent paid 39 percent). If we counted state and local taxes, which are far less progressive, the share of total taxes paid by the rich would be even less.
More important, however, is the fact that taxes should be based on ability to pay. Biblical principles of justice support a graduated, progressive tax system in which those with more wealth pay a larger share.
The Bible teaches in hundreds of verses that God has a special concern for the poor. The Old Testament specifically provided for poor people to bring less expensive offerings for worship. The biblical teaching on the land in Israel (an agricultural society where land was the basic productive capital) shows that God wants everyone to have access to the productive capital so they can earn their own way and be dignified members of society. Progressive taxation provides the resources to implement this biblical understanding of justice.
Benefit cuts
Poverty in the United States is growing: by 1.3 million in 2001 and almost certainly more in 2002. Effective federal programs to help the working poor need more dollars, but, because of ballooning federal deficits, Bush is cutting most of these programs while giving more huge tax cuts for the rich.
None of us likes taxes, but they sometimes pay for good things. Federal Pell grants pay college expenses for children from poorer families so they can work hard to gain skills to escape poverty, but their value keeps dropping. In 1965, Pell grants covered 85 percent of the cost of four years at a public university; in 2000, they covered only 39 percent. If we want more Pell grants for poor college kids, a living wage for all who work responsibly, and health coverage and Social Security for everyone, we cannot keep cutting taxes. And contrary to what many believe, a median family of four in 2001 paid a smaller share of their income in federal income taxes than at any year since 1957.
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President Bush claims to care about the poor, and I believe his faith-based initiative offers a historic opportunity to empower the needy. However, the poor need both effective faith-based social services and fair economic structures. They need a living wage, health insurance, educational opportunity and social security—and all that costs tax dollars that are rapidly disappearing as Bush gives one huge tax cut after another to a rich, tiny minority.
"If biblical prophets like Amos and Isaiah had read last week's news about what happened to child tax credits for low-income families, they surely would be out screaming on the White House lawn about the justice of God—and be quickly led away by the Secret Service," wrote Jim Wallis of the Christian magazine Sojourners.
Family Research Council President Ken Connor says it's okay not to extend the child tax credit to low-income families since they generally pay no taxes. "It's impossible to cut taxes below zero," he said. "Such refunds would amount to new welfare spending."
"The tax cuts may spur some short-term economic growth, but their long-term consequences are likely to be severe," says a Christian Century editorial.
Focus on the Family says the tax-cut package is "a plan that, by-and-large, treats families well, according to a consensus of pro-family analysts. But there is still room for improvement, especially with regard to marriage tax penalty relief."
For more updates on the tax credit debate, see Yahoo's full coverage area. Other articles on the child tax credit include:
Senate approves child tax credit in lower bracket | The bill, which would allow 6.5 million minimum-wage families to begin receiving checks of $400 per child, now goes to the House, where its prospects are uncertain (The New York Times)
Child tax-credit outcroppings | How the child credit refundability increase got dropped (Bruce Bartlett, The Washington Times)
Bush cranks up compassion of conservativism | Monday's White House concession on Medicare marks one more twist in the bargain with low-income Americans (The Christian Science Monitor)
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