Tax Credits and 'Refunds'
It has splashed across the front pages of the nation's newspapers as though it were a major scandal: In the tax-cut package just signed by President Bush, middle-income parents of underage children will pay less in taxes - Congress raised the child tax credit - while lower-income people won't be able to use that "credit."
Why won't they? Because low- income people already pay little or nothing in income taxes. But that hasn't stopped Democrats and some Republicans from saying the poor should receive the same "benefit" as middle-income Americans.
There's a bigger issue here: the pervasive and growing abuse of the tax code to achieve social goals. The income tax's purpose is to fund the federal government, not to be used in credits and deductions as a welfare program. Politicians are increasingly using Form 1040 to avoid raising spending. Over the past several years, tax cuts or tax credits have been labeled "refundable." That's Washingtonese for giving a "refund" to people who haven't paid the money in the first place. Apparently politicians think that's easier to slip past taxpayers - who can barely understand the increasingly complex tax laws - than creating a government program that would straightforwardly hand out the money to those in need.
Meanwhile, to hear the hue and cry in the media, one would think that the expansion of the child tax credit is giving away government funds to the middle-class and higher-income folks and denying them to the working poor. Not so. The child tax credit simply lets people who are paying taxes keep a little bit more of their own money. It is, after all, their money before the government takes it. (By the way, the credit isn't available to couples making more than $110,000.)
If politicians want to give $3.5 billion to the working poor, they should just do it with a spending program.