Opinion Editorial | |
| Monday, December 20, 1999 | |
Low-Income Tax Cheaters |
One of the few undeniably successful initiatives of the Republican Congress over the last few years has been its effort to tame the Internal Revenue Service. As a result of several legislative initiatives -- signed into law by Bill Clinton -- the IRS is now a much more "user friendly" agency that is making a far greater effort to treat taxpayers with courtesy and respect.
However, there are still those who long for the good old days when the IRS ran roughshod over taxpayers' rights in order to squeeze every last dollar of revenue out of their pockets. David Cay Johnston, who covers the IRS for the New York Times, has written several articles over the past year quoting disgruntled IRS agents, who moan about how taxpayers are getting away with murder because they can no longer be intimidated and audited to death.
Now Johnston reports of complaints that IRS auditing resources are increasingly being channeled away from the rich to those with low incomes. No doubt, most people reading this article thought that this was a very unfair policy and probably a stupid one as well. After all, how much taxes can the poor evade when most pay little if any taxes to begin with?
The startling truth is that the poor are among the biggest tax evaders, owing to the Earned Income Tax Credit. The credit is refundable for low income workers with no tax liability, so that they get a check from the government. Such checks can be very large. For a worker making $9,540 and with two children, the check will come to $3,816 or 40 percent of income (see figure).
EITC fraud is encouraged by tax preparers who make loans to low income taxpayers in anticipation of refunds. These preparers take advantage of the IRS's electronic filing system, which makes it harder to detect fraud. In 1993, 43 percent of returns identified as fraudulent were filed electronically, and 92 percent of those involved preparers making refund anticipation loans. A high percentage of these involved the EITC.
With total EITC payments estimated to equal $30 billion next year, fraudulent payments may equal $7.8 billion, assuming a 26 percent error rate. This is real money and fully justifies increased IRS scrutiny.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, December 20, 1999.
The National Center for Policy Analysis is a public policy research
institute founded in 1983 and internationally known for its studies on public policy issues.
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