NCPA - National Center for Policy Analysis

Republican Debacle On Earned Income Tax Credits

October 6, 1999

It was pointless for congressional Republicans to seek to reduce spending for the Earned Income Tax Credit (EITC). Although they were not, in fact, cutting benefits at all, it was inevitable that the accounting changes they tried to institute would be portrayed as cutting aid for the poor.

Republicans thought they could force Bill Clinton to break federal budget spending caps, while they defended the Social Security surplus, the annual excess of Social Security taxes over benefits. They reasoned that as long as the Social Security surplus was preserved in an unbreakable "lockbox" they would be safe politically, while Clinton would take the fall for breaking the caps.

However, the Republicans ignored a fact of federal spending life: the Social Security surplus is utterly meaningless as far as the certitude of retirees receiving their benefits. All current retirees will receive every penny promised, whether there is a Social Security surplus or not. The Social Security Trust Fund is nothing but an accounting device.

Nevertheless, Republicans staked their future on preserving the Social Security surplus. This elevated a mere accounting issue to the level of a moral principle.

To meet some arbitrary budget targets, Republicans needed to either cut spending -- despite a large budget surplus -- or dip into Social Security. They chose the former, but hoped to use an accounting sleight-of-hand -- moving some of the EITC from fiscal year 2000 into fiscal year 2001.

No benefits would actually have been cut, but close to $9 billion would be saved in the 2000 budget, allowing Republicans to meet their budget targets without using Social Security.

While the Republican EITC plan may in fact be good policy, it was the wrong time and place to reform a program almost universally hailed as the greatest thing since sliced bread. But the true source of this debacle lays with the misguided "lockbox" plan.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 6, 1999.


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