Subject: EITC: The Right-Left Reversal 
 
EITC: The Right-Left Reversal 
 
                  IN THE BEGINNING 
 
The Earned Income Tax Credit was first proposed by conservative economist 
Milton Friedman in chapter 12 of his 1962 book CAPITALISM & FREEDOM 
(University of Chicago Press). He called his proposal the "negative income 
tax", and the chapter title was "The Alleviation of Poverty". Friedman's 
theory was that poor people were poor because they didn't have enough 
money.  Working people with low income would not only not pay income tax, 
they would get a refund. It would decrease with increasing income, become 
zero, and then become a tax to be paid (the positive income tax), but in a 
gradual enough way to always provide an incentive to earn more. 
 
The "liberal" idea then was to spend a lot of money to create a vast 
federal bureaucracy with separate agencies to deal with each different 
aspect of poverty (HUD to build and manage housing for the poor, food 
stamps to feed the poor, etc.) This way the federal welfare system would 
provide for the poor as long as they stay poor. They get AFDC if they have 
kids. There are extra benefits to not get married, and benefits are cut off
if they earn "too much" money. 
 
The Friedman idea was ridiculed by Hubert Humphery and most "liberal" 
politicians, but was pushed by most "conservatives". It was implemented on 
a limited basis during Nixon- Ford Administration and expanded during the 
Reagan-Bush years under the name EARNED INCOME TAX CREDIT (EITC). President
Reagan called EITC "the best anti-poverty, the best pro-family, the best 
job creation measure to come out of the Congress".  President Clinton also 
expanded the EITC. 
 
 
But it was seen as a threat to the welfare state concept by some on the 
left: instead of bureaucrats rewarding people for NOT working, EITC was 
going to those who found a job. And with that money, they were less 
dependent on the welfare system. And the money went directly to the people 
who needed it not to well paid federal employees. I hope you saw the recent
post on  "Welfare: Who REALLY Benefits?"  by DonBlis160@aol.com on
a.p.e. It is included next on my web page. 
 
                  THE STRANGE REVERSAL 
 
With the election of a Republican congress in 1994, I thought we would see 
the triumph of Friedman's idea by replacing the negative incentive welfare 
system with an expansion of the "negative income tax" EITC. Instead, the 
new congress had chosen to keep food stamps and other aspects of the 
current welfare system and REDUCE EITC!  They have even voted to keep 
paying single girls to have more babies (AFDC), but they won't expand the 
incentive to get married or to work. Instead of expanding the Reagan 
Revolution, they want to repeal it. 
 
The new Congress seems to think EITC is "another welfare program" and an 
expense; they don't seem to realize it can REPLACE the existing welfare 
system, (and the  minimum wage law). With proper implementation it can 
provide incentive to work and insure that those who do work have enough to 
live.  It can be structured to provide people at any income level an 
incentive to earn more without loss of benefits, and without funding a vast
"welfare bureaucracy".  It did result is some income tax cheating by the 
poor, but this has always been a problem, usually by the rich. This can be 
monitored by the IRS as always, and is not a reason to scrap EITC in favor 
of welfare (which is at least as subject to abuse). 
 
                        WHY NOT?? 
 
The main "disadvantage" is that the cost is up front and open, now over $20
billion.  Opponents claim that it is better to just raise the minimum wage,
since that gives the working poor money and "doesn't cost anything" (no 
kidding, I have actually read congressmen saying that!) 
 
Also, EITC benefits only the working poor. Other welfare programs have 
interest groups to lobby for them; farmers for food stamps, labor unions 
for Public Housing (which they are paid high wages to build, to repair, and
to demolish when the units become too crime ridden to live in), and Federal
Employee unions for the administrators and social workers, etc. 
 
And to complete the reversal, it is now "Liberals" who are calling for 
keeping and expanding this idea under the name Universal Basic Income.