At the very time that the Bush Administration is pushing for somewhere between a half trillion and three quarters of a trillion dollars in new tax cuts targeted primarily to wealthy Americans, it's also thinking about getting tough with working poor families who get back a total of about $32 billion in earned income tax credits (EITC). The EITC, it should be remembered, is the country's most important form of help for working poor families, including those who might otherwise fall into or back onto public assistance. Once Ronald Reagan's favorite anti-poverty program, the EITC, as expanded under the Clinton Administration, has in fact helped lift millions of Americans out of poverty and off welfare.
In a program that the Treasury Department had planned to begin this summer, the IRS wants to force about 45,000 EITC recipients -- and maybe a lot more later -- to go through a "precertification" process providing proof they are related to children who are being claimed on income tax forms. It's sort of a mini-audit done separately from tax filing, and will cost the federal government $100 million.
The rationale for this unprecedented move is to step up enforcement to address EITC "errors," estimated as costing the federal government somewhere between $8 and $10 billion per year. "Errors," of course, don't necessarily mean fraud. And as the Progressive Policy Institute's Anne Kim explained in a PPI "Front and Center" article on the IRS initiative in February, "the [EITC] credit can be extremely confusing for taxpayers. Many have a tough time determining whether they're eligible and how much they're eligible for; the instruction booklet alone takes up 54 pages. The majority of poor families end up processing their returns with commercial tax preparers, who in turn divert nearly $2 billion in EITC payments for preparation fees."
We have no problem with initiatives to reduce tax fraud, but they should be balanced and not impose unique burdens on low-income families. What would really make sense is to simplify -- not complicate -- the EITC process, which would cut down on errors and the rake-off to tax preparers, while encouraging millions of families who should claim the EITC to do so. But instead the IRS is going to spend money to create a special program to make the EITC even more complex for working poor families.
Flack over this initiative appears to have postponed its implementation for the moment. Sen. Ted Kennedy (D-MA), for example, has threatened to offer an amendment to whatever tax legislation appears on the Senate floor this year prohibiting the IRS from imposing any filing burdens on low-income taxpayers that are heavier than those endured by the average taxpayer. And the issue may well come up in Congressional confirmation hearings for Mark Everson, the President's nominee to head the IRS.
The Administration really needs to back off on this program to intimidate the working poor from claiming a credit we want them to have to support their kids and stay off public assistance. We know some conservatives like to grumble about the EITC as "welfare," and would just as soon shut it down. But deliberately creating more bureaucracy to hassle EITC filers makes a mockery of both the Administration's alleged commitment to streamlining government, and its alleged compassion for the neediest Americans not to mention its claim to support work-based welfare reform.
The working poor need support and less bureaucracy -- not an initiative that sets out to confuse and trap them, and answers complaints in effect by saying: "Let 'em hire an accountant."
