Your tax dollars...down the drain: $132 billion in improper EITC payments
U.S. Senator Rob Portman (R-Ohio) today released the following example in a monthly series highlighting Washington’s wasteful spending during a time of record debt and deficits:
Our monthly government waste example is the incredibly high level of mispayments under the Earned Income Tax Credit (EITC).
The EITC is a federal spending program whose benefits are distributed through the income tax code. For 27 million families, the EITC provides a cash subsidy that usually grows as their work income grows.
The EITC is an important way to help working families, and by tying benefits to work, the EITC is vastly superior to welfare programs that often provide financial incentives to stop working. But that does not mean it is run efficiently.
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Rather than distribute the money as a grant, families calculate their EITC subsidy on their tax return and then reduce their tax liability by that amount (and if it reduces their yearly income taxes below zero, the government actually mails them a check). This structure essentially combines the waste of government spending with the inefficiency of the tax code.
“The next time you hear that taxes must be raised because there is no more room to reform the budget, remember the improper payments made through the EITC,” said Portman.
“In his State of the Union address, the President called to expand the program to help families struggling to make ends meet. Although this is a noble goal, we must first work to eliminate the abundant abuse in the program. If we don’t, the funds won’t go to those who need them most, and we’ll continue to pile on to our historic debt and weigh down future generations.”
The waste figures are remarkable, even by government standards. A recent government audit found that Washington has made as much as $132 billion in improper EITC payments over the past decade. That’s enough to send every family in America a check for $1,000 – or to fund nearly a decade’s worth of customs and border security.
In fact, over the past decade, improper payments have totaled approximately 25 percent of all EITC spending.
The audit blames the payment errors on the complexities of the law, taxpayer confusion, fraud, and “unscrupulous tax return preparers.”
Even worse, the IRS has refused to implement rules to rein in this waste. Executive Order 13520, signed by President Obama on November 20, 2009, required federal agencies to take specific steps to rein in improper payments.
Yet the government audit discovered that IRS has still not complied with this mandate. The agency blames its inaction on the complexity of the EITC program as well as concerns that anti-waste reforms would somehow discourage families from utilizing the credit.