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    Monday, April 15, 2024

    Punishing the poor while boosting deficit

    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.

    For those not familiar, the EITC is basically a way to top up low- and moderate-income people's pay through a tax refund, to give them a bigger payoff from working.

    The EITC has an excellent track record both economically and politically. Lots of studies have found that it increases workforce participation, for example. Since its introduction in 1975, it has also received bipartisan support, given its dual purpose as both an anti-poverty and a pro-work program. Both Republican and Democratic presidents have overseen major EITC expansions.

    Thanks to a combination of innocent mistakes and outright fraud, though, some EITC money is disbursed erroneously. And so in 2015 Congress passed a bipartisan law to improve the program's integrity. The changes that went into effect this year include a several-week delay in issuing EITC refunds so the IRS can match basic documents such as W-2s and 1099s to tax filers' reported income.

    The IRS hasn't yet analyzed the full effect of these changes, though early numbers look promising.

    Before the full results are in, however, House Republicans have decided to do something far more drastic.

    Sometime in the next few weeks, the House is expected to vote on the fiscal 2018 budget resolution, a procedural step that's designed to pave the way for tax cuts. That's gotten a fair amount of coverage, of course. Less publicized is troubling language in the budget resolution committee report, which proposes decreasing "improper" EITC payments by requiring verification of all income before benefits go out.

    The language is vague but appears to refer to a Heritage Foundation proposal that would require the IRS to "fully verify income through a review of Form W-2, Form 1099, business licensing or registration, and relevant invoices" before dispensing any refunds. So, a mini-audit.

    As noted in a report from the Center on Budget and Policy Priorities, conducting mini-audits of all 28 million EITC claimants would be an astonishingly laborious task, both for tax filers and for the IRS.

    It would impose huge administrative burdens on low-income workers, many of whom cobble together a living through multiple jobs and part-time "gig economy" positions, from which they may not earn enough money to require a 1099.

    At a time when Republicans are flogging tax simplification, this would make tax preparation infinitely more complicated. Unless, of course, the goal is to discourage poor people from applying for the EITC in the first place.

    Even for those who persisted in applying for the refund, EITC payments might be delayed for many months, causing great hardship. The vast majority of recipients use their refund checks for rent, utilities, mortgage payments and other necessities, as well as to pay down debt.

    But the proposal is more than just cruel. It's also likely to cost the government a lot of money.

    Recall that Republicans have been steadily cutting the IRS's budget, which is a silly thing to do if you're truly a fiscal conservative who believes in "law and order." The IRS brings in far more money than it's appropriated, particularly in its work going after tax cheats.

    And cutting the IRS budget is an especially silly thing to do if you're also giving the agency an enormous new mandate likely to crowd out other enforcement activities − including those that bring in much bigger paydays.

    The amounts at stake in EITC audits are relatively small. Overclaim errors are often just a few hundred dollars, compared with the hundreds of thousands or even millions that can be recovered from deep-pocketed corporations and individuals.

    Arguably the IRS already devotes too many resources to these small-potatoes cases; EITC audits represent about 39 percent of all individual income-tax audits, despite accounting for just 7 percent of additional taxes that audits find to be owed.

    If Republicans actually cared about reducing EITC tax cheating, there are more effective and compassionate things they could pursue, such as regulating the fly-by-night unlicensed tax preparers responsible for a disproportionate share of EITC fraud.

    President Trump said he'd help America win again. He can start by persuading his fellow Republicans to ditch this lose-lose proposition.

    Catherine Rampell's column is distributed by the Washington Post Writers Group.

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