It's no surprise that in connection with yesterday's Ways and Means Oversight Subcommittee hearing on problems with refundable tax credit payments that the usual political charges were made.
Yep, this blog post's headline encapsulates what each side was saying about the other.
The GOP's release was subtly entitled "Democrats Defend Fraud — Argue Taxpayer Funds Should Be Wasted." It then accused Ways and Means Democrats of refusing to address the rampant waste, fraud and abuse in the current tax code and cited Democratic-damning data on improperly claimed tax credits by prisoners and the first-time homebuyer credit.
Meanwhile, the Democratic spin machine announced "NEWS: Republicans Attack Tax Benefits for Working, Middle Class Families," as well released the party's own set of "TAX FACTS: Republicans Target the Middle Class, Oppose Crack down on Array of Abuses."
Both Dem documents characterized the tax breaks under scrutiny at the hearing as "unique incentives to reward work and help families pay for college, adopt and care for children, and purchase homes."
Name-calling and finger-pointing aside (yes, Congressional rules apparently are patterned after elementary school recesses), there's no disputing that regardless of the tax benefit, some folks will screw up when they claim it, often quite innocently.
And there's also no disputing that regardless of the tax benefit, some folks will blatantly try to cheat the U.S. Treasury (and fellow taxpayers) out of money.
EITC focus: One of the tax breaks that gets a lot of attention when it comes both simple filing mistakes and flat-out fraud is the Earned Income Tax Credit (EITC), which was created to help workers who don't make much money.
The EITC is one of a handful of refundable tax credits, those tax breaks that allow filers to get a refund when they don't owe the IRS any money.
The EITC also is the poster child for what's wrong with the tax code.
It's complicated, meaning folks who qualify usually usually need help to claim it. But because most of them don't have a lot of discretionary income, they can't afford to hire someone to help them claim the credit. Yes, there are tax programs, such as the low-income tax clinics (LITC) and Volunteer Income Tax Assistance (VITA), that can help.
But there also are unscrupulous tax preparers -- sometimes in league with the taxpayer, sometimes not -- and scam artists who take advantage of the EITC confusion to abuse the system and get an IRS refund when it's not appropriate.
Nina E. Olson, the National Taxpayer Advocate who also spent decades as a tax practitioner and founded the country's first independent low-income taxpayer clinic, told the hearing yesterday that data on the nonrefundable credits, most of which benefit lower-wage taxpayers, do not necessarily connect the tax breaks with more noncompliance than any other tax provision.
"In context, EITC noncompliance may be a relatively small portion of the tax gap," said Olson. "Nonetheless, the discussion below focuses primarily on the EITC because it is the refundable credit identified under applicable law as an 'improper payment.'"
According to Olson, the audit rate for tax returns claiming the EITC claims is approximately twice the general audit rate. Yes the EITC audits yield on average only about a third as much tax per examination and an even smaller proportion of tax from individual audits overall, as detailed in the table below (click image for a larger view) from her written testimony:
Olson told the Ways and Means subcommittee that the amount of effort the IRS devotes to relatively low-yield EITC audits means that the agency is probably collecting less overall revenue than it would if it instead pursued a strategy of auditing higher-yield -- that is, wealthier taxpayer -- returns.
The Taxpayer Advocate also details in her testimony several recommendations (yet again) regarding administration and enforcement of EITC claims.
Cure tax code disease instead of treating filing symptoms: Examining the costs of such improper tax refunds is part of Congress' job.
But in addition to focusing on how much these wrong credit filings, either by mistake or abuse, cost us, Congress also needs to explore ways to make compliance with these (and other) tax laws easier.
Perhaps yesterday's hearing on the payment problems with EITC and other refundable credits will be another stone in the road that eventually leads to comprehensive tax reform.
That would almost make the associated political demagoguery acceptable.
- House panel examines improperly paid refundable tax credits
- KinderCongress needs to act, not act up
- Viva VITA!
- Catching tax cheats in prison
- Why credits are the better tax break
- Is it time for tax reform?
- Tax breaks for minimum wage workers
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