How a little kids' tax credit became a big battleground

Protesters waved signs and pushed symbolic strollers through a steady rain, as Republicans gathered at the Washington Hilton across the street for a $3.5 million fundraiser for President Bush.

"Tax credits to the poor! Millionaires don't need no more!" protesters chanted. It was a reference to the child tax credit for low-income families that is bogged down in Congress but could become law with a little elbowing from Mr. Bush. A few passing cars honk support.

It's a tough issue for the president: To settle the standoff from the White House risks either offending elements of the GOP conservative base or giving Democrats an issue they can exploit in the 2004 campaign. Bush has called on the House and Senate to "quickly resolve their differences."

Behind this drama is an obscure bit of tax code that only recently has emerged as the Democrat's latest best hope for a defining issue in the 2004 election campaign.

It started as a blip on the way to a $350 billion tax cut that Bush signed into law May 28. The new law increases the annual child tax credit from $600 to $1,000, with more families eligible over time. Arkansas Sen. Blanche Lincoln - the lone Democrat to support the tax cut on the Senate Finance Committee - proposed accelerating refunds for low-income families, who otherwise would not get checks until 2005. Her proposal made it through the Senate - but was bumped in the final House-Senate compromise.

By then, a liberal think tank published an analysis that showed that many low-income families would not benefit from the new tax cut, including 6 million who would be excluded from the full increase in the value of the child tax credit because they earned too little.

Democrats began to sense an issue.

"The child tax credit is a clear demonstration of priorities, and it will be hard for Republicans to walk away from it," says Sen. Jon Corzine, chairman of the Democratic Senatorial Campaign Committee. "It makes a good stump speech when you're trying to motivate people to change control of the US Senate."

Senate Republicans quickly passed a bill to restore the credits, including $10 billion in offsets to pay for it without raising the federal deficit. Bush said he supported it, and GOP moderates hoped the House would pass the Senate bill.

Controversy over. But wait...

House Republicans countered with a new $82 billion tax cut: the Senate's $10 billion in accelerated child tax credits for low-income families, plus more child tax credits for middle- and upper-income families, as well as tax breaks for members of the armed forces. But the House bill included no budget offsets, making the whole package a nonstarter in the Senate.

The controversy has all the makings of what insiders call "ping-pong" politics. The House passes a bill, the Senate rejects it, both sides cast stones. It was a template for Capitol Hill politics when Republicans controlled the House and Democrats the Senate. But with Republicans running both sides of the Capitol, such fights are less appealing to GOP strategists.

Democrats sense a rift in Republican ranks and are eager to exploit it.

House Democrats have created a "Working Families Tax Fairness Clock" out of a laptop computer. They can't bring it on to the floor of the House, since electronic devices are forbidden. So, it sits on a desk in minority whip Steny Hoyer's office marking out the seconds since the Senate passed their bill - a reminder, he says, of House Republican values. "Twelve million children in America need it. But the House Republicans want to kill it," said House Democratic leader Nancy Pelosi Tuesday.

Conservative Republicans say the whole issue is overblown.

"The Democrats are trying to turn a tax cut into a spending program for people who don't pay taxes," says Grover Norquist, president of Americans for Tax Reform.

GOP lawmakers in the House and Senate say the White House is asking them to work with speed, but has not expressed a preference for either bill. "Our bill is a more honest version of their bill," says John Feehery, spokesman for the House Speaker Dennis Hastert.

The Senate doesn't agree. "To get out of this box, the president has to weigh in," says Dave Lackey, a spokesman for Sen. Olympia Snowe (R) of Maine.