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New tax cut scam excludes poor kids

CONGRESSIONAL Republicans are hoping to pass yet another budget-busting tax cut this summer and manipulate Democrats into voting for it by using poor children as the bait.

In 2001 and 2003, Congress passed legislation providing a child tax credit for the middle class that gradually rose to $1,000 per child, but Republicans excluded working-class children who needed help the most. In the 2003 law, families earning between $10,500 and $26,625 got nothing, including 260,000 children of active-duty servicemen and women. All told, about one child in four was excluded.

Working-class families were left out because their breadwinners are too poor to pay much federal income tax. Republicans argued that anyone who paid little or no income taxes had not earned tax relief. Of course, these families do pay sales taxes, payroll taxes, excise taxes, and property taxes.

Republicans are now proposing to extend token benefits to lower-income families, but their price is a dramatic expansion of the tax breaks for well-to-do families with incomes of up to $309,000 -- that's the richest 2 percent of American families. The preexisting law wisely phased out all child tax credit benefits at family incomes of $149,000. The new Republican proposal would more than double that income ceiling at a cost to the deficit of $89 billion over 10 years.

Under the Republican bill, which has already passed the House, the affluent families would get tax cuts of $1,000 per child. The poor ones would get $150 per child. Anyone with less than $10,500 would get nothing. That's almost exactly the annual income of one fulltime minimum wage earner.

As fiscal policy, this is appalling, since the previous tax cuts tilted to the wealthiest already create decades of unsustainable deficits. As social policy, it is even worse -- perfect Robin Hood in reverse.

But Congress may well enact this legislation, deftly timed for a Rose Garden signing ceremony festooned with happy children and right on the eve of the Democratic National Convention. In a charming touch, Republicans have dubbed the week of July 19 "Tax Fairness Week."

Here are the legislative politics: The extension of the tax breaks to more affluent families, plus a few crumbs for poor ones, is wrapped into a bill that makes the middle-class child tax credit and other tax cuts permanent and also gets rid of the so called marriage penalty. Total 10-year cost: about $500 billion.

The child tax credit was one of the few provisions in the Bush tax program that actually delivered some benefits to the broad middle class. Few legislators will have the nerve to vote against a package that includes it. Indeed, in political circles of both parties, where politicians spend an inordinate amount of time with large donors, $309,000 is a fairly typical income for those who can afford to write a $1,000 donation check. It seems almost middle-class. This is one reason why the Democratic Party has lost its edge.

For now, the only thing holding back this travesty of a tax bill is a small group of moderate Republican senators led by Olympia Snowe of Maine. This brave band of lawmakers actually believe that no further tax cuts should be enacted unless they are explicitly paid for either with other tax increases or program cuts. For the moment, the Republican chair of the Senate Finance Committee, Charles Grassley of Iowa, is deferring to Snowe.

That demand makes fiscal sense, but it would be a shame if this tax giveaway were resisted solely on the ground that it busts the budget. The more serious outrage here is that poor children who desperately need better schools, better health care, and better early-childhood programs are getting less than ever, while affluent families who've already gotten extensive tax breaks are getting more.

Republican legislators could well come up with some budgetary gimmick that makes it seem as if this new round of tax breaks is paid for, and then the moderates with the green eyeshades will likely cave in and allow the bill to become law.

If that occurs, let's hope that Senators Kerry and Edwards have the nerve to vote against it and use the occasion to explain to voters how the administration is cheating the many to reward the few. Yes, this would invite a new round of Bush TV ads denouncing Kerry for voting "against children" and for "higher taxes." But if Kerry has the gumption, it could also smoke out a real debate that Bush can't win if voters are encouraged to pay attention.

Robert Kuttner's is co-editor of The American Prospect. His column appears regularly in the Globe. 

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