GOP doesn’t embrace Obama tax plan

Congressional Republicans aren’t embracing President Obama’s proposal to expand a key tax credit for the working poor, complicating any chances for one of the few legislative initiatives in this week’s State of the Union address. 

Obama had cast an expansion of the Earned Income Tax Credit (EITC) – which helps working households to the tune of about $60 billion each year – as an area where the two parties could find common ground, even name-checking a similar proposal from Sen. Marco Rubio (R-Fla.) on Tuesday night.

{mosads}But top GOP lawmakers said they remain concerned about the large number of improper EITC payments that get circulated each year, even as conservative economists and Rep. Paul Ryan (R-Wis.) have called for taking another look at the tax break.

“My biggest concern is just the amount of fraud,” said Rep. Kevin Brady (R-Texas), a senior House Ways and Means Committee member. “Too much of it is not going to the families that actually need it. And again, our biggest goal is to get people into better jobs so they don’t have to rely on the Earned Income Tax Credit.”

Ways and Means Committee Chairman Dave Camp (R-Mich.) and other Republican tax writers also remain fixated on their increasingly long-shot goal of overhauling the tax code — and have suggested that any changes to the tax credit are not a priority, and would be accomplished through tax reform.

“If it’s an overall look at the program, I think it’s certainly worthwhile,” said Camp, who acknowledged the program has benefited many taxpayers.

But a simple expansion, he said, “would not be helpful.”

There are reasons to think that both Democrats and Republicans would want to work together on the credit, which was implemented to encourage work for low- and middle-income individuals and families. 

Democrats and liberals have long applauded it as a weapon in the battle against poverty.

In his speech on Tuesday, Obama said that the credit should be strengthened for adults without children, or without custody of their children — a proposal that liberals had been pushing even before the State of the Union.

“That’s always been the glaring hole,” said Chuck Marr of the Center on Budget and Policy Priorities. “It leaves out adults without children.”

Families with three children can receive a maximum credit of around $6,000, while the most that adults or married couples can receive is less than a tenth as much — just under $500. 

On the other side of the aisle, Republicans generally prefer the tax credit to a minimum-wage hike — a related priority that Obama and Democrats have set for this election year. 

Conservatives say the EITC can offer workers security without hurting employers, which they predict would happen if Democrats secured a minimum wage increase to $10.10 an hour. Plus, Republicans say the credit encourages personal responsibility — one of the reasons President Reagan was a supporter.

But some current GOP officials also note that Treasury’s inspector general for tax administration said that as much as $13.6 billion worth of EITC payments were wrongly issued in 2012 — or as much as a quarter of the payments that year.

The level of improper payments is one of the reasons Rubio proposed replacing the tax break with a new wage enhancement credit that would be disbursed through workers’ paychecks. The EITC is delivered in a yearly lump-sum payment.

Rubio, who was burned by his work with Democrats on immigration reform in 2013, took pains to distance himself from Obama’s proposal this week, even as he acknowledged he shared the same goal as the White House.

“I think we’ve identified the same issue, but his prescription for it seems to be more of the same,” Rubio said in a radio interview this week. “And that’s problematic.”

Democrats in both congressional chambers have yet to meet to set their 2014 agenda, as House Republicans are currently doing. Still, the EITC could easily be one of the key pieces in congressional Democrats’ agenda this election year, as they try to move the debate beyond debt and deficits and pitch themselves as defenders of the middle class. 

“There’s a lot of focal points for building a middle class,” said Sen. Ben Cardin (D-Md.), who nonetheless didn’t think an EITC push could gain much traction amid the broader tax reform and budget debates.

“If we can get to taxes, the answer is yes,” Cardin said. “It’s going to be challenging to see how we can get to a focused bill on tax issues.”

Democrats also see the potential political advantage if Republicans decline to coalesce behind a stronger EITC or a related proposal. Democrats could then have more ammunition as they try to cast the GOP as protectors of tax breaks for the wealthy and corporations, but not the middle class — much the same way they did in the debate over the payroll tax cut a couple years ago, and throughout much of the 2012 campaign.

Marr, of the liberal CBPP, said that Republicans were overstating the impact of the EITC improper payments. 

But he also predicted that the GOP could show more interest in EITC proposals in the coming months, as they make their own election push — and as leading conservatives like Ryan and Glenn Hubbard, an economic adviser to Mitt Romney’s 2012 campaign, continue to urge taking another look at the tax break.

“If they feel they have to come up with positive ideas, this is a natural one for them to grasp on to,” Marr said.