President Obama recently gave a lengthy speech on inequality, poverty, and what to do about it. He claimed inequality is increasing, which is debatable, and then offered a few populist ways to reduce it, such as raising...
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- IRS to Work with States to Reduce Erroneous EITC Payments
IRS to Work with States to Reduce Erroneous EITC Payments
The IRS is one of the more maligned government agencies in the country, and while there isn't much sympathy for the IRS among taxpayers or lawmakers, the agency is really just carrying out the demands of Congress. And those demands are getting harder and harder to fulfill. As the National Taxpayer Advocate, Nina Olsen, pointed out in her latest report to Congress "the IRS no longer is just a revenue collection agency but is also a benefits administrator."
A perfect example of this is the Earned Income Tax Credit (EITC). The EITC is a tax credit available to low- and moderate-income working individuals and families. It is one of the federal government's largest anti-poverty programs, paying out $55 billion in 2009. The value of the credit depends on, among other things, a taxpayer's income level and number of children. This sounds simple enough, but improper EITC payments, defined as either over-payments or under-payments, are a big problem. Verifying income, family, age, and household eligibility requirements for the 25 million EITC recipients is a difficult and time consuming task even for an organization designed to handle the task, which the IRS is not. The improper payment rate for the EITC was estimated at somewhere between 23% and 28% in a recent report from the Treasury Inspector General for Tax Administration, costing the government around $12 billion annually.
But the President's Office of Management and Budget (OMB) has a proposal that it thinks will help bring down the error rate. They propose a pilot program to cross-check federal EITC information with databases linked to state benefits programs, such as Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and state tax credit programs. In this way they hope gather relevant information that will help reduce erroneous payments to those who are ineligible and also identify those who are eligible but currently not receiving the EITC. The pilot program, estimated to cost between $300,000 and $550,000 per state, will initially only include a few states in order to assess its potential. According to the proposal,
[O]n average a one percent reduction in the improper EITC payments to individuals in one State equates to $2.4 million annually. Therefore, the pilot has the potential to save significant amounts if it indicates that State data can improve the accuracy of EITC claims even marginally. [emphasis original]
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