Tax breaks designed to help Hurricane Katrina victims get their hands on needed cash could do more for higher-income survivors than for the neediest, a congressional report says.
The Congressional Research Service, an office that provides nonpartisan legislative analysis to lawmakers, pointed to several items in virtually identical bills that passed in the House and Senate last week.
One helps hurricane victims get access to their savings by waiving penalties imposed on taxpayers who tap into their retirement savings accounts before retirement. Others let taxpayers write off more of their destroyed property, and erase taxes regularly imposed when a debt, like a mortgage, is forgiven.
The report says lower-income survivors are less likely to have retirement accounts like 401(k)s and IRAs to tap into for recovery. Because many lower-income individuals and families pay little tax, assistance efforts that lower their taxes may do little good, the report said.
However, the same tax bills also include tax assistance specifically for lower-income families that help the working poor hang onto their income tax credits, which can be disrupted by unemployment or family separation.
The provision lets those left unemployed or earning less because of Hurricane Katrina calculate their earned income tax credit based on income earned last year, allowing some families to claim a bigger credit. A similar calculation could be done for the child tax credit.
The House and Senate bills must be reconciled and signed by President Bush before becoming law.
Congress gets inventive on aid
Congress has started working on other fronts to help the poorest victims of Hurricane Katrina. Lawmakers sent the president a bill giving states immediate access to more welfare funds. Lawmakers have also discussed giving hurricane survivors access to Medicaid health care and making unemployment insurance funds more flexible.
Two Illinois Democrats, Sen. Barack Obama and Rep. Rahm Emanuel, suggested getting cash quickly into the hands of hurricane victims through an advance earned income credit payment.
Peter Orszag, a budget and tax policy expert at the Brookings Institution, said lawmakers would be better off directing aid through assistance programs like food stamps and unemployment insurance because they “are going to be better targeted to the severe cases of hardship.”
