TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, April 28, 2017

Weekly SSRN Tax Article Review And Roundup

This week, Erin Scharff (Arizona State) reviews an article by Susanna Camic Tahk (Wisconsin), The New Welfare Rights, Brooklyn L. Rev. (forthcoming):  

Scharff (2017)Susannah Camic Tahk’s previous work has explored the “tax war on poverty,” as she calls it.  In her forthcoming article, Camic Tahk considers a potential upside of federal poverty policy’s shift from direct spending to refundable tax credits: the significant procedural protections afforded taxpayers.  Camic Talk’s article compares these taxpayer rights to the failure of War on Poverty lawyers to instantiate a “new property right” in welfare benefits and persuasively argues that these taxpayer rights rest on much more solid legal footing.  Camic Tahk’s article further suggests the ways that a taxpayer rights framework offers opportunities for improving the ways low income taxpayers interact with the IRS.

Camic Tahk’s paper begins by recounting the aspirations of the Great Society poverty law lawyers.  Drawing on accounts by historians and political scientists as well as legal academics, Camic Tahk explains how the hopes of these reformers were raised when Goldberg v. Kelly expanded due process rights, and how their hopes were dashed by the Eldridge v. Matthews balancing test.  Subsequent legislative changes, most prominently the passage of the Personal Responsibility and Work Opportunity Act (“PRWORA,” or, more commonly, welfare reform) further struck a blow to the idea that recipients might have due process claims when denied government benefits.  As Camic Tahk explains, post-welfare reform court decisions saw the PRWORA as explicitly attempting to avoid the entitlement language that would make benefits subject to Goldberg’s expansive endorsement of due process rights.

Camic Tahk then traces the expansion of the “tax war on poverty” from Milton Friedman’s “negative income tax” to the Great Recession’s expansion of the Earned Income Tax Credit and the Child Tax Credit.  In her catalog of anti-poverty tax provisions, Camic Tahk also includes education tax credits, child care tax benefits, and the Premium Assistance Credit, as well as provisions targeting business investment that help low-income Americans and low-income communities (the Low-Income Housing Tax Credit, the New Markets Tax Credit, and the Work Opportunity Credit). 

The heart of Camic Tahk’s paper develops the idea of tax rights for the poor.  As she notes, while few courts have considered the question directly, those that have assume that taxpayers have a property interest in their refunds, and she suggests that this understanding may also apply to the refundable portion of a tax refund.  For Camic Tahk, a key advantage of framing these rights as tax rights is that these rights adhere to all taxpayers, and therefore tax offers a way of securing these rights by creating a broader class of stakeholders and avoiding the stigmatization associated with enrolling in other kinds of public assistance.

After summarizing the various statutory rights afforded taxpayers, Camic Tahk embarks on what I think is the most interesting part of her project, practical suggestions for the ways this framework might lead to reform.  Camic Tahk focuses on Form CP-75, which the IRS sends to taxpayers being audited for claiming the EITC requesting additional documentation.  It is standard practice for the IRS to freeze at least part of a taxpayer’s refund while awaiting receipt of additional documentation, and 70% of taxpayers who receive the CP-75 fail to respond.

Camic Tahk notes a litany of ways that Form CP-75 fails to meet due process notice requirements required by Goldberg.  For example, the letter informs the taxpayer that the IRS is “holding” her refund, but fails to explain in clear and concise language that the refund will be disallowed if the taxpayer fails to respond to the request for documentation.  The letter also fails to explain why the IRS has opened the audit or even how much of the refund the IRS is holding. 

Working with the survey research firm Qualtrics Research Services, Camic Tahk documents the ways this lack of notice may make recipients less likely to respond.  She gave sample populations both a real Form CP-75 and then three variations on the real form, and then asked them questions that tested their understanding of the Form.  While most respondents understood that a response was due within 30 days, over half thought that the form requested a phone response.  (It did not.) And almost half of her respondents did not understand the consequences of failing to respond to the letter. 

Camic Tahk’s research suggests much that could be done to improve IRS communications with low-income taxpayers (and likely all taxpayers).  Hopefully, tax practitioners can expand on her rights-based arguments to press the IRS for changes to these procedures and forms.  (My own particular frustration has long been the complexity of the Form W-2 for low-wage workers with multiple part-time jobs.)  Given the likely increasing austerity of the IRS budget, outside research and legal advocacy may be the best way to secure these new welfare rights.  This is an exciting possibility. 

And yet, tax tools remain limited for helping those in deepest poverty.  While Camic Tahk suggests the potentially equalizing possibilities of delivering benefits through the tax code rather than through spending programs, she also recognizes the possibility that tax-driven policy programs almost exclusively target the working poor.  In this way, as others have noted, the tax war on poverty may continue to distinguish between the deserving and the undeserving poor.  As one possible solution, the article suggests the possibility of refundable tax credits even for those without incomes, as some legislation has suggested in a limited fashion. As a technical matter, this could work.  As a political matter, I’m less certain of its success.  But given that expanding other poverty programs seems unlikely in the next four years, I’ll take what I can get. 

Here’s the rest of this week’s SSRN Tax Roundup:

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