January 11, 2006

Criminalizing the Earned Income Tax Credit

David Cay Johnston has an important story in today's New York Times. Turns out, the IRS has been withholding refunds from a significant number of poor Americans for the last five years.

Tax refunds sought by 1.6 million poor Americans over the last five years were frozen and their returns labeled fraudulent, although the vast majority appear to have done nothing wrong, the Internal Revenue Service's taxpayer advocate told Congress yesterday. A computer program identified the refund
requests as suspect and automatically flagged the taxpayers for extra scrutiny for years to come, the advocate said in her annual report to Congress. These taxpayers were not told that the I.R.S. criminal investigation division suspected fraud.

The advocate, Nina Olson, said the I.R.S. devoted vastly
more resources to pursuing questionable refunds sought by the poor - which under the highest estimate is $9 billion - than to the $100 billion in taxes not paid each year by people who work for cash and either fail to file tax returns or understate their income.

As for the suspected fraud in refund requests, Ms. Olson said her staff sampled the suspect returns and found that 66 percent were entitled to the amount sought or more. Another 14 percent were due a partial refund. She expressed doubt that many among the remaining 20 percent had committed fraud.
"At a minimum, this procedure constitutes an extraordinary violation of fundamental taxpayer rights and fairness," Ms. Olson wrote, adding that it "may also constitute a violation of due process of law."

This is just another example of the fundamental disrespect for government that this Republican administration has. It also reflects their prority, through either legislation or abuse of power-as in this case, of offering major giveaways to the rich while cutting necessary public services for everyone else. In this case, it might amount to essentially stealing from those who can't afford a tax lawyer to watch their backs. This action by the IRS, and Senator Chuck Grassley's response, reflect a toxic assumption that poor people must be criminals. This is an example of lowered-expectation governance. A lot of people who need it the most seem like they've lost a whole lot of money here. Lets hope this gets straightened out, and fast.


At 11:25 AM, Anonymous Mack Simmons said...

The reality is in many cases, there are poor people who are playing fraud games with the EITC. For example, a couple divorces and the wife naturally gains custody of the kids. But the husband, if he has the paperwork handy, can actually claim the kids are in his custody and end up with the proceeds from the tax credit. This can go on year after year until the IRS, when it finally gets around to batch auditing some filings, notices some discrepancies and begins sniffing around.

Such an example has happened, in this case, with my late uncle and my aunt; the IRS in his case, never got around to picking him up. Such fraud is particularly common knowledge among Black people, who see relatives pull such frauds over and over. But like welfare fraud, in which people claim children that they don't actually have in their care, it's far more common than most Whites, especially those on the left, want to believe.

While there is a possibility that the Bush administration is simply keeping poor people from the money they are due, it is just as likely that the IRS, prompted by some of the auditing and performance measurements instituted by then-OMB Director Mitch Daniels in 2001 -- one of his few real achievements before becoming governor of Indiana -- are actually doing their job for once and checking for fraud. Which in the long run, will prove far more beneficial to the poor in terms of getting them their legitimate cash than simply letting scamsters run rampant.

At 11:43 AM, Anonymous Anonymous said...

Mack Simmons, please read the Advocate's report before offering any of your generalizations.
I'd refer you particularly to Volume 2.

On second thought - even a cursory glance at the NY Times article should have given you pause before ignorantly projecting the behavior of your own criminal family to an entire racial group. You would have learned that 66 percent of the refunds frozen by the IRS were done so erroneously and another 14 percent were entitled to at least a partial refund. Thus, the vast majority of the "poor people" in question were not playing any fraud games, unlike your own flesh and blood.

Or are you the nerdiest troll that ever was?

At 12:29 PM, Blogger Matt G said...

Let's all play nice, please-- no "trolls" here.
I think the point the IRS advocate was trying to make is not that we shouldn't try to enforce EITC compliance--obviously, we should-- but that low-income tax avoidance (or errors) are simply not where the money is, and the scale of tax avoidance at the upper end of the income distribution is much bigger. That's where the IRS ought to be focusing its audit resources.

At 2:14 PM, Anonymous Mack Simmons said...

That may be so Matt, but compliance should be expected of all taxpayers, no matter their level of income. After all, everyone is supposed to pay their share of the government burden and as is, about 40 percent of all taxpayers actually get money back, which means they don't actually provide support for all the services -- including the big ticket items of Medicare, Medicaid and Social Security -- that they often receive in return.

At the heart of all this is a principle: Fraud, be that of the wealthy or of the poor, hurts all taxpayers. Accepting it from all levels, whether or not it's where the money's at, only means allowing criminals of all kinds to get away with theft. Period.

As for anonymous or whatever you call yourself instead of something approaching a name: It would be nice that if you're going to accuse my family of criminality -- and not those of an uncle by marriage (and by the way, divorced my aunt, by birth, decades ago when he began this fraud) -- then you better bring evidence and more importantly, attach your real name to it. And since I am Black and grew up in the very neighborhoods those frauds are happening, I should know quite well that Blacks know at least a small percentage of their community are committing fraud. The same goes for those among Whites, Latinos and the like.


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