Making work pay.

• Author: Lerner, Preston
• Position: Expansion of the Earned Income Tax Credit

The Earned Income Tax Credit is the Sara Lee of the federal tax code: Nobody doesn't like it--Democrats, Republicans, liberals, conservatives, neos, paleos, you name it. Described as a "work bonus" when it was instituted in 1975, the EITC is supposed to guarantee that Americans who work for a living don't have to raise their children in poverty. What's not to like?

In a perfect world, of course, we wouldn't need the Earned Income Tax Credit. Unfortunately, 5.5 million Americans live in households dangling below the poverty line even though the head of the household works full-time. Consider, for example, the plight of the minimum-wage slave. Even with the maximum food-stamp entitlement of $3,200 on top of an annual salary of $8,840, a family of four remains nearly $3,000 shy of the poverty threshold. Which is where the EITC is supposed to ride to the rescue.

In his presidential campaign, Bill Clinton vowed to "raise the Earned Income Tax Credit to make up the difference between a family's earnings and the poverty level." Now, the press isn't in the habit of applauding politicians for the promises they keep, but on the EITC, Clinton deserves praise. Although the plan approved by Congress in August wasn't as ambitious as the one the president had been pushing, it still injects an additional $20.8 billion into the program over the next five years. By 1996, when the expansion is fully phased in, an estimated $23 billion in EITC payments will be dispersed annually, making the program even more expensive than Aid To Families with Dependent Children.

Besides providing more generous benefits, the new EITC also expands the scope of the program to embrace an estimated 20.6 million taxpayers, up from 14.5 million in 1993. And while it doesn't completely bridge the gap between the minimum wage and the poverty line, it significantly narrows the margin. "We are incrementally attempting as a society to move beyond welfare to the subsidization of work, and I think that's good," says Gene Steuerle, a senior fellow at the Urban Institute. "But government programs come with trade-offs--administrative and enforcement costs--and this is no exception."

Although he generally supports the new and improved EITC, Steuerle has plenty of reservations about who the EITC helps, how much it helps them, and why it's such a ripe target for fraud. And like professional bakers confronted with a Sara Lee cheesecake, he, like many other economists, thinks he's got a better...