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The Seasonal Republican Welfare Program

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The period from about the last week in February to the end of March is like a second Christmas season for some businesses. It is the time when millions of Americans receive their income tax refunds and suddenly have extra hundreds, and even thousands, of dollars to spend. But all tax refunds are not created equal. Many Americans will receive a refund of money that they never paid in — thanks to the Republicans.

Before World War II, no American ever received a tax refund because the original income tax contained no provision for tax withholding. Those few who owed income taxes paid them in one lump sum on March 15 (later changed to April 15). The Current Tax Payment Act of 1943 revolutionized the income tax by instituting the withholding of potential income taxes due from employees’ paychecks. Americans who owed less in taxes than the amount withheld from their paychecks received a refund of the money they overpaid the government. Although the withholding tax was sold as a wartime emergency, like most expansions of government introduced during wartime, it has been with us ever since. The reason millions of Americans rushed to file their 2016 tax forms and schedules at the end of January and beginning of February is that they were expecting a tax refund, in some cases a substantial one.

Tax deductions reduce the amount of income subject to tax; tax credits reduce the amount of income tax owed. Either way, one will pay less in taxes the greater the number, and the greater the amount, of deductions and credits that one qualifies for. Tax deductions and credits (and their cousins tax exemptions, loopholes, breaks, shelters) are therefore always a good thing because they allow Americans to keep more of their money in their pockets and out of the greedy hands of Uncle Sam.

But just as all tax refunds are not created equal, likewise with all tax credits. There are actually two kinds tax credits.

A regular tax credit is a dollar-for-dollar reduction of the amount of income tax owed. Current tax credits include the child tax credit, the credit for child and dependent care expenses, the adoption tax credit, education credits, the foreign-tax credit, the credit for the elderly and disabled, the retirement savings contributions credit, the electric vehicle credit, and residential energy credits. Tax credits may reduce the amount of tax owed to zero, but if there is no taxable income to begin with, then no tax credit can be taken because no taxes are owed in the first place.

A refundable tax credit is treated as a payment to the government from the taxpayer like federal income tax withheld or estimated tax payments. If the tax credit “payment” is more than the tax owed after the regular tax credits are applied, then the “taxpayer” receives a refund — a refund of money he never actually paid in. The money is simply taken from those who pay taxes and transferred to him.

Refundable tax credits are subsidies; regular tax credits are not. Refundable tax credits are simply another form of welfare, although they are rarely viewed as such. They are also the ultimate form of welfare because they are cash payments that do not count as income when determining eligibility for other federal welfare programs.

The seasonal Republican welfare program is the Earned Income Tax Credit (EITC). According to the Internal Revenue Service (IRS):

The Earned Income Tax Credit, EITC or EIC, is a benefit for working people with low to moderate income. To qualify, you must meet certain requirements and file a tax return, even if you do not owe any tax or are not required to file. EITC reduces the amount of tax you owe and may give you a refund.

There are other refundable tax credits, such as the additional child tax credit and the American opportunity credit, but they pale in comparison to the EITC, which last year, according to the IRS, was claimed by “more than 27 million eligible workers and families” who “received more than $67 billion.” The average amount of EITC received nationwide was about $2,455.

According to the IRS, to be eligible for the EITC, one’s earned income and adjusted gross income (AGI) must each be less than $14,880 (no children), $39,296 (1 child), $44,648 (2 children), or $47,995 (3 or more children). For married taxpayers, the amounts are $20,430 (no children), $44,846 (1 child), $50,198 (2 children), or $53,505 (3 or more children). Investment income for the year must not exceed $3,400. The maximum amount of credit for 2016 is:

  • $6,269 with three or more qualifying children
  • $5,572 with two qualifying children
  • $3,373 with one qualifying child
  • $506 with no qualifying children

The EITC is a Republican welfare plan from start to finish.

The program began when Republican president Gerald Ford signed into law the Tax Reduction Act of 1975. It grew under the Republican president Ronald Reagan and the Republican majority he had in the Senate for six years. It got larger thanks to legislation signed by the Republican president George H.W. Bush. The program was increased by the Republican-controlled Congress under Bill Clinton. And then, when the Republican president George W. Bush had a Republican majority in Congress for more than four years, instead of eliminating or scaling back the program, it was expanded. Under the Democrat president Barack Obama, Republicans helped pass the American Taxpayer Relief Act that expanded refundable tax credits. And then the Republican-controlled Congress included in Division Q of the fiscal year 2016 omnibus appropriations bill (H.R.2029) the Protecting Americans from Tax Hikes Act (PATH) of 2015 that permanently extended enhanced provisions of the EITC enacted in 2009 that were set to expire in 2017. Now that Donald Trump has been elected president with Republican majorities in both Houses of Congress, the Republicans once again have a chance to roll back the welfare state.

It is Republicans who say they believe in the Constitution. It is Republicans who say they favor limited government. It is Republicans who say they are fiscal conservatives. It is Republicans who say they believe in the free market. It is Republicans who decry welfare and income redistribution. Yet, when Republicans had a chance to roll back the welfare state, they expanded it. And now that they have another chance to roll it back, there has been no talk of doing so.

There is not a dime’s worth of difference between Republicans and Democrats when it comes to the welfare state. Over the years, Republicans have increased funding for not only the EITC, but also for other welfare programs such as Temporary Assistance to Needy Families (TANF); food stamps; the National School Lunch Program (NSLP); Medicaid; Women, Infants, and Children (WIC); energy assistance; the State Children’s Health Insurance Program (SCHIP); Section 8 housing vouchers; and Supplemental Security Income (SSI).

The EITC is a massive wealth redistribution scheme made possible by the continued support of Republicans in Congress who claim to be opposed to such things. It not only should be eliminated, it could be eliminated, and quite easily, if the Republicans were not welfare statists just like the Democrats.

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