Massive tax cuts will cheat children

When we make an expensive purchase, we like to be sure we know how we are going to pay for it.

It only makes sense. So why is Congress considering passing five years of tax cuts, without any provision for where the money will come from?

Congressional leadership has declared the week of July 19 to be “tax fairness week” and plans to use it to extend three tax cuts for up to five years. While these tax cuts are often called the middle-class tax cuts, in fact nearly two-thirds of the money spent through this tax cut would go to upper-income families, and only one- third to middle-income families. Less than 1.5 percent of the money would go to low-income families. The disparity will be even greater if the child tax credit is extended to families earning as much as $300,000 a year.

We question the fairness and fiscal responsibility of extending current tax credits and expanding a child tax credit to those with higher incomes, without finding some way to make up the lost federal revenues that are needed to serve all our citizens. Extending tax credits without providing a way to pay for this break reduces the pot of money needed to ensure that we invest wisely in our youngest citizens. Extending the tax cuts for five years makes it harder for Congress to manage its money wisely than if it limits the tax cuts to one or two years so that it can revisit them to see if they remain good policy.

To compound the unfairness of this bill, it now seems possible that the bill will provide nothing for our poorest kids. Many working families get only a small fraction of the child credit because they pay little or no federal income tax. Starting in 2005, they’ll be able to get more of the credit as a refund. While this bill was originally designed to increase the amount of the credit that could be refunded in 2003 and 2004, some now argue that an expansion for these working people shouldn’t be included in this bill since they pay little or no federal income tax. These families do pay other taxes though – sales, payroll and property taxes – so they are as much entitled to a tax cut, and far more in need of one.

The new bill may expand the child tax break for families with incomes up to as much as $309,000; even millionaires benefit from two of the tax cuts that are being extended. It doesn’t make sense that through this bill the richest two percent of American families will get tax credits, while the poorest of our children will get nothing.

Fortunately, a bipartisan group of senators, including Republican Olympia Snowe of Maine, have the same concerns. On Monday, they released a proposal to extend the tax cuts by only one year, with the full cost of the extension to be offset. Their proposal would make sure that the poorest children would receive the larger child tax credit refund in 2004, but does not extend the tax credit to high-income families. This proposal demonstrates that it is possible to extend the tax cuts for working families without adding to the federal deficit. Now it is up to the negotiators between House and Senate to shape a bill that reflects the fairness and fiscal responsibility in this proposal.

We cannot afford a massive tax cut, made in the name of children, when they will be the ones who will be hurt by it and will pay for it for years to come. Legislators should insist that these tax cuts be offset, short term, and equitable. In our current fiscal crisis, Congress must manage its revenues carefully and keep its options open, not relinquish revenues for years at a time.

It is equally critical that the tax cuts be limited in size, to ensure that federal revenues remain available for targeted investments in kids. While increasing the number of high-income families that can claim the child tax credit is bad policy that should be avoided, if the tax credit is expanded to include more high-income families, as a matter of basic fairness it should be also expanded to make the same investment in low-income families.

Elinor Goldberg is the executive director of the Maine Children’s Alliance. Tamara Lucas Copeland is the executive director of Voices for America’s Children in Washington, D.C.