Payroll Tax Debate Aftershocks Will Be Felt Strongly By Latinos

Congress should reconsider plans to restrict tax credit access

   

Congress has a lot on its agenda when it reconvenes next week. One of the most closely watched items will be the extension of the payroll tax holiday for all of 2012. Recall the pre-Christmas drama surrounding this issue: while there was bipartisan agreement to extend the stimulative tax break on payrolls through the end of 2012, there was caustic disagreement over how to pay for it. Senate Democrats pushed for a surtax on incomes in excess of $1 million, while Republicans refused to consider tax increases of any kind and wanted to realize the savings through spending cuts.

The tiniest of compromises was agreed upon in the form of a two month extension and a promise to continue the conversation this year. That debate has begun again in earnest. Politico reports that Republicans are proposing to find $24 billion in savings by changing a law that allows undocumented workers to claim the Additional Child Tax Credit. Under current tax law, workers that have an Individual Taxpayer Identification Number, but not a social security number, are allowed by the IRS to claim a tax credit for their children, who are often American citizens. This refundable tax credit is claimed by the poorest of working families: those that make about $21,000 a year.

Cutting the credit for undocumented workers may be great politics in the very short term for some in an election year, as it will allow them to look both tough on immigration and frugal, but this is terrible policy and will ultimately prove to be bad politics as well.

Why It’s Bad Policy

If the undocumented workers who claim this child credit are denied it, they will effectively see a few hundred dollars evaporate from their incomes. It is important to stress that this credit is available only to those with very low incomes who are therefore most likely to spend it. This is a group that probably does not have the luxury of saving or investing their tax refund. Consumer spending is vital to our recovery, and any clear hindrance of it will end up costing us more than it saves us.

By making paid, taxable work less appealing to families with children, we would inevitably be encouraging people to work off the books, so to speak. As it stands, this group of workers contributed $7 billion to Medicare and Social Security though payroll taxes in 2010. If these workers find no personal benefit to paying taxes, they may find it more attractive to work only for cash, and we all lose their tax dollars.

Why It’s Bad Politics

The Hispanic community is the fastest growing voting bloc in the U.S. If the GOP and a few nervous Democrats (e.g. Claire McCaskill, the Democratic Senator from Missouri who is facing a difficult re-election this year) choose to pursue policies that disproportionately hurt immigrants, they will weaken their appeal to the Hispanic community as a whole. While Hispanic voters are a reliably Democratic voting bloc (67% identify with or lean towards the Democratic Party), Republicans are foolish to ignore this large and growing group.

Every election is effected to some degree by the enthusiasm of the electorate. At the moment, Hispanic voters are not paying close attention to the race. According to Pew, 56% of them have given little or no thought to the race. If Congress strips the ACTC from poor, working Latino families, it is likely Hispanics as a whole will have reason to be more engaged in the election drama.

Although it seems that the GOP has a lot to lose by targeting immigrants with this policy change, Democrats face a perilous choice as well. If they are viewed as defending undocumented workers at a time of high unemployment, they risk alienating working class voters in general. Despite the political risk to Democrats, however, they should still fight to keep the credit.  They may be able to attenuate the claim of being pro-illegals by claiming that they are actually pro-child and pro-family.

Finally, the savings generated from this policy change will fall squarely on the shoulders of the very children the policy was originally intended to help. We as a country do ourselves no favors by taking money away from some of the youngest, poorest Americans.

The opinions contained in this column are solely those of the writer.

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