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Editor: Paul L. Caron, Dean
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Friday, September 15, 2017

WaPo: The GOP's War On The EITC

EITCIn this op-ed in the Washington Post, columnist Catherine Rampell comments on a proposal in the Budget Committee Report 115-240 explaining the current budget legislation.  It's a proposal to tighten up processing of tax returns claiming the Earned Income Tax Credit (ETIC).  She writes:

Never accuse Republicans of being uncreative. Once again, they’ve found an innovative way to punish the poor and simultaneously increase budget deficits — all with one nifty trick!  

To pull off this impressive twofer, they would put every American applying for the earned-income tax credit (EITC) through a sort of mini-audit before getting their refund. This would both place huge new burdens on the working poor and divert scarce Internal Revenue Service resources away from other audit targets, such as big corporations, that offer a much higher return on investment.

http://taxprof.typepad.com/taxprof_blog/2017/09/wa-po-gops-war-on-eitc.html

Bryan Camp, Gov't Reports, News, Tax, Tax Policy in the Trump Administration, Tax Practice And Procedure | Permalink

Comments

It's not really a tax refund, it's more of a welfare program. Even Taxpayer Advocate Nina Olson admitted that when she said it was easier to administer than "other welfare programs." And it is a magnet for fraud. When I was a special agent we did a sample and found about 30% were in error or outright fraudulent, after the obvious fraud was kicked out. That was twenty five years ago. Now every con man and doper knows it is easy money. Even illegal aliens are cashing in. Best thing would be to eliminate the credit altogether and stick with collecting taxes- let somebody else handle welfare payments. IRS has too much on its plate already. Tax simplification should be what it says.

Posted by: Smitty | Sep 16, 2017 8:39:03 AM

I think most folks would agree with Smitty that the EITC is a welfare program. It's purpose is to help families avoid irredeemable poverty and the resulting despair and greater burden on society. Two points to keep in mind. First, the bad guys (dopers and con men) can use any provisions of the Tax Code to submit fake returns claiming fake refunds for stolen identities. The recent Equifax data breach just means there will be LOTS more fake tax returns submitted. In fact, if you are going for a fake refund, why limit yourself to the paltry $3,000 to $6,000 offered by the EITC? Heck, just use the section 31 refundable credit for overpayments and falsely report payments greater than liability. Second, the EITC seems pretty good at accomplishing the anti-poverty objective. See e.g. Hilary W. Hoynes, Ankur J. Patel, "Effective Policy for Reducing Inequality? The Earned Income Tax Credit and the Distribution of Income" at http://www.nber.org/papers/w21340.pdf. See also Bruce Meyer, “The Effects of the Earned Income Tax Credit and Recent Reforms” at http://www.nber.org/chapters/c11973.pdf.

Posted by: Bryan Camp | Sep 16, 2017 9:07:13 AM

Mr. Camp, perhaps you missed Smitty's main point. The IRS is charged with collecting tax revenue to fund the federal government. Social engineering is not part of its mandate. If Congress wants to pay welfare, they should do so out the front door, not the back one. Of course this would require congress to be honest in its intentions, i.e., a up or down vote on welfare, instead of a disguised under the table payment no one understands.

Posted by: Dale Spradling | Sep 16, 2017 2:23:04 PM

Hi Dale, Yes, I got that. I am sure that many folks (including you, I assume) share Smitty’s sentiment in that regard. And it is certainly a reasonable position to say that Congress should use the Tax Code to fund the government and not to carry out social policy. My only point was that the opposite position is also reasonable and, in fact, running a safety net policy through the Tax Code has worked pretty well. It should not be astonishing that Congress may have more than one reasonable option. And those who demand the absence of any social engineering in the Tax Code are tilting at a might big windmill. Congress has embedded social policy in the Tax Laws since 1789. Just go read the debates about tariffs! Revenue generation was definitely not the primary consideration for Congress in decide what import duties to impose and how large to make them. Only when Congress desperately needed revenue to fund the Civil War in 1861 did it get serious about focusing on revenue generation first.

Posted by: Bryan Camp | Sep 16, 2017 4:26:11 PM

Excellent post, Bryan. While my sympathies are generally with Dale and Smitty, the truth is that there are legitimately competing considerations.

Posted by: Mike Petrik | Sep 16, 2017 6:12:59 PM

Bryan, you're correct in that our tax code is a mess. Things are so bad, the IRS, regardless of funding levels, has no hope of accurately administering this beast. All you have to do is experience one season with VITA to see what a bad joke our tax system has become. You have the blind leading the blind and the result is worse than sausage. And then, when you look at the corporate welfare programs, I'm amazed Apple's effective tax rate is not negative.

I know it's not going to happen. I just turned 65. I'll probably never see true tax reform in my lifetime. For example, I have long advocated public companies should pay a reduced rate on their book earnings. With one stroke of a pen, we would eliminate enormous complexity. At the individual level, we should recognize most citizens pay little or no income taxes, just payroll taxes. Therefore, why not start the individual income tax at taxable incomes of say $75,000? The number of 1040s filed would fall like keys out of a Lear jet. Again, I realize this will never happen. In fact, I predict things will only get worse and worse. I'm just happy I already have one foot on a banana peel and I get to leave this crap for you young folks to figure out.


Posted by: Dale Spradling | Sep 17, 2017 7:03:49 AM

The bill proposes a committee that would look into income matching. In other words, a study to test Nina Olson's matching proposal from a few years ago. You can always count on WaPo for hysterical nonsense.

Posted by: jpe77 | Sep 20, 2017 5:52:56 AM