Credit for Working Poor Exemplifies Tax Burden Shift : Budget: Expanded program will help 15 million families. It’s part of the Clinton campaign to reverse Reagan’s policy of giving breaks to affluent.

WASHINGTON — It took a back seat to tax hikes and spending cuts in the public debate over President Clinton’s economic program but some analysts think it could prove to be one of the most important--and popular--elements of the budget bill that just squeaked through Congress.

In what amounts to a quiet yet dramatic shift in the nation’s tax burden, the budget measure approved by the House and Senate late last week contains a $20.8-billion expansion of the earned income tax credit that is available to America’s working poor.

The proposal will provide significant income tax cuts or cash rebates for 15 million families struggling to stay above the poverty line and represents one of the few big-ticket spending proposals to survive this year’s preoccupation with deficit reduction.

California will benefit more from the expansion of the tax credit than any other state, according to Robert Greenstein, the leader of a small Washington think tank, the Center on Budget and Policy Priorities.

More than 2 million California families will be eligible for the expansion of the tax credit, bringing in an extra $3.3 billion for state residents.

When the credit’s expansion is fully phased in by 1996, income taxes owed by full-time workers below the poverty line will be reduced by as much as $1,375; if the credit exceeds their tax liability, they will receive a cash payment. The $1,375 is roughly the same amount as the tax increase faced by couples earning $200,000 a year under Clinton’s program.

Families with two or more children and with incomes of $11,000 or less will be eligible for the maximum credit of $3,554. Smaller credits are available for families with two or more children with incomes up to $27,000. Families with one child will be eligible for a maximum credit of $2,062, phasing out at an income level of $23,763.

Traditionally, the credit has been reserved solely for families with small children, but this year’s expansion means that for the first time a modest credit will be available to childless workers as well. Childless workers between the ages of 25 and 65 who earn between $5,000 and $9,000 a year will be eligible for a credit of about $300.

Most of the furor over the Clinton budget focused on the higher gasoline taxes that all Americans will pay and higher individual tax rates for the wealthy and small businesses. The debate over the earned income tax credit, in contrast, was remarkably low-key.

Yet the expansion ranks among the more ambitious anti-poverty initiatives undertaken by the federal government. The earned income credit currently costs the government about $11 billion annually, making it the fourth-largest “means-tested” program after Medicaid, food stamps and Aid to Families With Dependent Children. With the expansion, it will rank third.

The expanded credit is a key element in Clinton’s campaign to reverse the economic legacy of former President Ronald Reagan by shifting the burden of federal taxes away from the poor and back toward the wealthy. The budget measure includes large tax increases for affluent taxpayers.

Clinton’s objective is to make sure that Americans who work full-time can keep their families out of poverty.

“If people do work, they shouldn’t be in poverty,” the President has said. “This is not just a pro-work policy, it is a pro-family policy.”

While Clinton’s original proposal was cut by more than $7 billion to help offset the elimination of his broad-based energy tax, it is still remarkable that an initiative without a strong lobbying voice in Washington survived this summer’s brutal budget negotiations.

“The poor don’t have a lobby,” observed Sen. Thomas A. Daschle, (D-S.D), who supported the tax credit expansion.

The only pro-credit lobbying outside the Administration was done by Greenstein’s Center on Budget and Policy Priorities.

“We just tried to do a lot of education; our only strength is in the fact that we provide honest analysis of the budget issues involved, to people on the Hill and in the Administration,” said Ellen Nissenbaum, legislative director of Greenstein’s policy shop.

The White House and Greenstein’s group were successful in convincing lawmakers that the tax credit expansion was not designed simply to offset the effects of Clinton’s energy tax on the poor. The Administration had to phase in the credit expansion more slowly and reduce its eligibility to win congressional approval and meet Clinton’s budget targets. But the President managed to convince Congress that it was central to his anti-poverty agenda.

“This was never simply an offset on the energy tax; the President was always committed to the tax credit as a way to lift working families out of poverty,” said Gene Sperling, deputy director of the National Economic Council at the White House.

In the end, the proposal’s enactment shows that heavy lobbying may not always be needed if a program is popular and can generate broad support.

In the case of the earned income credit, that support was prevalent among moderates and conservatives in Congress because the program benefits only poor people who work, not those on welfare. It also proved crucial in Clinton’s ability to keep liberal Democrats on board when the final votes on the budget finally came.

But even with such sharp expansion, supporters acknowledge that the Clinton proposal falls short of his goals.

Clinton said that the tax credit, combined with food stamps and his proposal for a higher minimum wage indexed to inflation, would get all families with a full-time worker and two or more children out of poverty.

“We don’t quite get there,” noted Nissenbaum. “We’re close, but we don’t quite make it.”

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