Clinton tax plan would aid working poor

WASHINGTON -- President Clinton entered the election-year battle over taxes today with a $21 billion plan to combat poverty by expanding tax breaks for low-income people.

The White House described the initiative as part of a ''new opportunity agenda'' that Clinton will unveil in his Jan. 27 State of the Union address to Congress. The overall program is designed to help all Americans share in the nation's growing prosperity.

Clinton, in a speech to the Democratic Leadership Council, was to announce he will seek an expansion of the earned-income tax credit, costing $21 billion over 10 years. The measure could help Vice President Al Gore answer initiatives of former Sen. Bill Bradley, his rival for the Democratic presidential nomination.

Bradley has proposed expanding the tax credit for low-wage workers as part of a $9.8 billion ''wholesale rescue effort'' for the poor.

Clinton's initiative would require approval by an election-minded Congress, where Republicans and Democrats are deeply divided over the size and shape of any tax cuts.

Rep. Bill Archer, R-Texas, chairman of the House Ways and Means Committee, said the credit always has enjoyed bipartisan support in Congress. But, he added, ''Taxpayers might question spending billions more on a program that the IRS says already wastes close to $6.5 billion each year -- or about one dollar out of every five -- because of fraud and mistakes.''

The earned-income tax credit was created in 1975 to keep people working and to offset the payroll taxes they contribute for Social Security and Medicare. It also was intended to give people an incentive to stay off welfare. In 1993, a Democratic Congress approved the largest increase in the history of the program.

In 1998, taxpayers earning between $10,000 and $31,000 were eligible, depending on the number of children they have. The average 1998 claim was $1,459 for 19.4 million taxpayers.

Republicans, stung by Clinton's veto of their $792 billion tax package last year, have scaled back hopes for a massive tax cut this year. Instead, they are drawing up a far more modest package of educational tax breaks and marriage-penalty relief.

Clinton's initiative would expand the maximum credit for working families with three or more children by roughly $500 in 2002, according to the White House. The maximum credit in that category would go from $3,992 to $4,491.

Further, married couples would be allowed to earn more before their credit was phased out. A married, two-wage couple with children could earn up to $14,480 in 2001 and still receive the maximum credit, compared with the $13,030 threshold under current law. The provision would give the couple an additional $250 benefit.

Another provision would allow families with two or more children to retain more of the credit after they earn the maximum allowed. Under current law, the credit is reduced by 21 percent for each dollar earned above the ceiling. Clinton's proposal would lower the phase-out rate to 19 percent.

The earned-income tax credit became a political football last year.